Magnolia Oil & Gas (NYSE: MGY) outlines WildFire deal assets, output and reserves
Rhea-AI Filing Summary
Magnolia Oil & Gas Corporation, through Magnolia Oil & Gas Operating LLC, is acquiring 100% of the limited liability company interests of WildFire Intermediate Holdings, LLC from WildFire Energy I LLC, indirectly adding mostly contiguous assets covering approximately 810,000 net acres in multiple East Texas counties targeting the Eagle Ford, Austin Chalk and Woodbine formations. For the three months ended June 30, 2026, the Seller expects production of 53 Mboe/d (approximately 70% oil). As of December 31, 2025, the Seller’s Proved Developed Reserves were 139.8 MMBoe, including 100.3 MMBbls of oil, and total Proved Reserves were 271.2 MMBoe, including 196.5 MMBbls of oil.
As of June 30, 2026, Magnolia had cash and cash equivalents of approximately $295.9 million and no borrowings outstanding under its senior secured reserve-based revolving credit facility. For that quarter, Magnolia currently expects capital expenditures of $125 million and total net production of 106 Mboe/d (approximately 40% oil), while the Seller expects capital expenditures between $110 million and $120 million and total net production of 53 Mboe/d. These financial and operational figures are preliminary, unaudited estimates subject to change. The company also provides WildFire’s audited 2024–2025 financial statements, unaudited 2026 interim statements, pro forma combined financial information, an independent reserves report, and auditor and petroleum engineer consents for use in future securities offerings.
Positive
- None.
Negative
- None.
Filing Explained
The July 20 Form 8-K records that Magnolia Operating has agreed to acquire 100% of WildFire Intermediate Holdings’ interests; it describes a prospective transfer of WildFire’s assets, not a completed acquisition.
8-K Event Classification
Key Figures
Key Terms
reserve-based revolving credit facility financial
Proved Developed Reserves financial
successful efforts method financial
asset retirement obligations financial
costless collars financial
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
What acquisition involving WildFire did Magnolia Oil & Gas (MGY) describe?
How large are the WildFire assets and reserves in the Magnolia (MGY) transaction?
What Q2 2026 production does Magnolia Oil & Gas (MGY) preliminarily expect?
What capital spending is projected for Q2 2026 for Magnolia (MGY) and the Seller?
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UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date
of earliest event reported):
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction |
(Commission |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨
Item 8.01 Other Events.
As previously disclosed in the Current Report on Form 8-K of Magnolia Oil & Gas Corporation, a Delaware corporation (“Magnolia”), filed with the Securities and Exchange Commission (the “Commission”) on July 19, 2026, Magnolia and Magnolia Oil & Gas Operating LLC, a Delaware limited liability company (“Buyer”), entered into a purchase and sale agreement with WildFire Energy I LLC, a Delaware limited liability company (“Seller”), pursuant to which Buyer agreed to purchase from Seller 100% of the issued and outstanding limited liability company interests of WildFire Intermediate Holdings, LLC, a Delaware limited liability company (the “Acquisition”).
For purposes of incorporating by reference into future registration statements to be filed with the Commission and other offering documents, Magnolia is filing (i) certain updated disclosure as set forth in Exhibit 99.1, which is incorporated hereby by reference, and (ii) the following:
| (a) | the audited financial statements of Seller as of and for the years ended December 31, 2025 and 2024, as set forth in Exhibit 99.2, which is incorporated herein by reference; |
| (b) | the unaudited condensed financial statements of Seller as of and for the three months ended March 31, 2026 and 2025, as set forth in Exhibit 99.3, which is incorporated herein by reference; |
| (c) | the unaudited pro forma combined financial information of Magnolia as of and for the three months ended March 31, 2026 and for the year ended December 31, 2025, which gives effect to the Acquisition as if it had been consummated on January 1, 2025, as set forth in Exhibit 99.4, which is incorporated herein by reference; and |
| (d) | the report of Netherland, Sewell & Associates, Inc., independent petroleum engineers, relating to the historical reserve estimates of Seller as of December 31, 2025, as set forth in Exhibit 99.5, which is incorporated herein by reference. |
Item 9.01. Financial Statements and Exhibits.
| (a) | Financial statements of businesses acquired. |
The audited financial statements of Seller as of and for the years ended December 31, 2025 and 2024 and the unaudited condensed financial statements of Seller as of and for the three months ended March 31, 2026 and 2025 are filed herewith and attached hereto as Exhibits 99.2 and 99.3, respectively, and are incorporated herein by reference.
| (b) | Pro forma financial information. |
The unaudited pro forma combined financial information of Magnolia as of and for the three months ended March 31, 2026 and for the year ended December 31, 2025 is filed herewith and attached hereto as Exhibit 99.4 and is incorporated herein by reference.
| (d) | Exhibits. |
|
Exhibit No. |
Description | |
| 23.1 | Consent of Grant Thornton LLP, independent auditors for Seller, dated July 20, 2026 | |
| 23.2 | Consent of Netherland, Sewell & Associates, Inc., independent petroleum engineers for Seller, dated July 20, 2026 | |
| 99.1 | Certain Updated Disclosure | |
| 99.2 | Audited Financial Statements of Seller as of and for the years ended December 31, 2025 and 2024 | |
| 99.3 | Unaudited Condensed Financial Statements of Seller as of and for the three months ended March 31, 2026 and 2025 | |
| 99.4 | Unaudited Pro Forma Financial Information of Magnolia as of and for the three months ended March 31, 2026 and for the year ended December 31, 2025 | |
| 99.5 | Report of Netherland, Sewell & Associates, Inc. Relating to the Estimated Historical Reserves of Seller as of December 31, 2025 | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MAGNOLIA OIL & GAS CORPORATION | ||
| Date: July 20, 2026 | By: | /s/ Timothy D. Yang |
| Name: Timothy D. Yang | ||
| Title: Executive Vice President, Chief Legal and Commercial Officer, Corporate Secretary and Land | ||
Exhibit 99.1
Certain Updated Disclosure
Pursuant to that certain Purchase and Sale Agreement (the “Purchase Agreement”) by and among Magnolia Oil & Gas Corporation, a Delaware corporation (the “Company”), Magnolia Oil & Gas Operating LLC, a Delaware limited liability company (“Magnolia Operating”) and WildFire Energy I LLC, a Delaware limited liability company (“Seller”), Magnolia Operating is acquiring 100% of the issued and outstanding limited liability company interests of WildFire Intermediate Holdings, LLC, a Delaware limited liability company (the “Target”), from the Seller (and indirectly acquiring 100% of the issued and outstanding limited liability company interests of each of the Target’s subsidiaries, except for certain subsidiaries that will be excluded from the transaction and retained by the Seller in accordance with the terms of the Purchase Agreement). The mostly contiguous assets held directly or indirectly by the Target encompass approximately 810,000 net acres primarily in Brazos, Burleson, Fayette, Grimes, Lee, Madison, Milam, Robertson and Washington counties, Texas. For the three months ended June 30, 2026, Seller’s production is expected to be 53 thousand barrels of oil equivalent per day (“MBoe/d”) (approximately 70% oil), producing primarily from the Eagle Ford, Austin Chalk and Woodbine formations. Proved Developed Reserves as of December 31, 2025 included approximately 100.3 million barrels (“MMBbls”) of oil and a total of 139.8 MMBoe and total Proved Reserves as of the same date included approximately 196.5 MMBbls of oil and a total of 271.2 MMBoe.
*********
As of June 30, 2026, we had cash and cash equivalents of approximately $295.9 million and no borrowings outstanding under our senior secured reserve-based revolving credit facility.
*********
Neither we nor the Seller have finalized our respective financial and operational results for the three months ended June 30, 2026. However, set forth below are certain preliminary estimates of our and the Seller’s production information and expected capital expenditures based on information available as of the date hereof for the three months ended June 30, 2026. During the course of the preparation of our financial statements and related notes, we may identify items that would require us to make material adjustments to the preliminary estimates presented below. These preliminary estimates for the three months ended June 30, 2026 are not necessarily indicative of the results to be achieved for any future period.
The preliminary estimates presented below are subject to a variety of risks and uncertainties, including significant business, economic and competitive risks and uncertainties. Accordingly, our and the Seller’s actual results may differ materially from those contained in the preliminary estimates set forth below.
The preliminary data set forth below have been prepared by, and is the sole responsibility of, the Company and the Seller. Each of our independent registered public accounting firm, the Seller’s independent auditor and each of our and the Seller’s independent petroleum engineer has not audited, reviewed, compiled or performed any procedures with respect to such preliminary data. Accordingly, each of our independent registered public accounting firm, the Seller’s independent auditor and each of our and the Seller’s independent petroleum engineer does not express an opinion or any other form of assurance with respect thereto.
For the three months ended June 30, 2026, we currently expect to report capital expenditures of $125 million. The Seller also currently expects capital expenditures to be between $110 million and $120 million.
Furthermore, for the three months ended June 30, 2026, we currently expect total net production volumes to be 106 Mboe/d (approximately 40% oil), and the Seller currently expects total net production volumes to be 53 Mboe/d (approximately 70% oil).
This preliminary financial and operational information is not a comprehensive statement of our or the Seller’s financial or operational results for this period, and our and the Seller’s actual results may differ significantly. Our and the Seller’s managements’ estimates are preliminary, derived from our and the Seller’s internal records and are based on information available as of the date hereof. The estimates for the preliminary estimated financial and operational information described above constitute forward-looking statements and are not guarantees of future performance or outcomes. These estimates are preliminary and inherently uncertain. Our normal reporting processes with respect to the foregoing preliminary estimates have not been fully completed. These preliminary results have not been audited or reviewed by our independent registered public accounting firm, the Seller’s independent auditor or each of our or the Seller’s independent petroleum engineer and may change and those changes may be material. Accordingly, you should not place undue reliance upon these preliminary financial and operational results.
2
Exhibit 99.2
WildFire Energy I LLC
Annual Report
For the years ended December 31, 2025 and 2024
TABLE OF CONTENTS
| Report of Independent Certified Public Accountants | 3 |
| Consolidated Balance Sheets | 4 |
| Consolidated Statements of Operations | 5 |
| Consolidated Statements of Unit Holders’ Equity | 6 |
| Consolidated Statements of Cash Flows | 7 |
| Notes to Consolidated Financial Statements | 8 |
| 1. Organization and Summary of Significant Accounting Policies | 8 |
| 2. Acquisitions and Divestitures | 13 |
| 3. Derivative Financial Instruments | 14 |
| 4. Fair Value Measurements | 15 |
| 5. Oil and Natural Gas Properties | 17 |
| 6. Asset Retirement Obligations | 18 |
| 7. Long–Term Debt | 18 |
| 8. Leases | 21 |
| 9. Commitments and Contingencies | 22 |
| 10. Income Taxes | 22 |
| 11. Defined Contribution Plan | 23 |
| 12. Incentive Units | 23 |
| 13. Related Party Transactions | 23 |
| 14. Subsequent Events | 23 |
| 15. Supplemental Disclosures | 24 |
| 16. Supplemental Information on Oil and Gas Exploration and Production Activities (Unaudited) | 26 |
|
GRANT THORNTON LLP 700 Milam St., Suite 300 Houston, TX 77002
D +1 832 476 3600 F +1 713 655 8741 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Managers
WildFire Energy I LLC
Opinion We have audited the consolidated financial statements of WildFire Energy I LLC (a Delaware limited liability company) and subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2025 and 2024, and the related consolidated statements of operations, unit holders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for opinion We conducted our audits of the consolidated financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of management for the financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are available to be issued. | ||
 |
Grant Thornton LLP is a U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership. | ||
|
Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with US GAAS, we: | |||
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. | ||
| · | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. | ||
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. | ||
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. | ||
|
·
|
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
| ||
| We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. | |||
 | |||
| Houston, Texas | |||
| April 8, 2026 | |||
3
WildFire Energy I LLC
Consolidated Balance Sheets
(In thousands)
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,364 | $ | 12,009 | ||||
| Accounts receivable, net | 96,751 | 113,654 | ||||||
| Inventory | 8,019 | 7,549 | ||||||
| Short-term derivative instruments | 65,083 | 5,196 | ||||||
| Debt issuance cost | 7,212 | 12,392 | ||||||
| Prepaids and other current assets | 6,194 | 5,526 | ||||||
| Total current assets | 185,623 | 156,326 | ||||||
| Oil and natural gas properties, successful efforts method: | ||||||||
| Proved oil and natural gas properties | 4,411,357 | 4,087,462 | ||||||
| Unproved oil and natural gas properties | 11,033 | 12,818 | ||||||
| Other property and equipment | 91,004 | 89,019 | ||||||
| Accumulated depreciation, depletion and impairment | (1,957,022 | ) | (1,689,990 | ) | ||||
| Total property and equipment, net | 2,556,372 | 2,499,309 | ||||||
| Other non-current assets | ||||||||
| Debt issuance costs | 15,984 | 15,074 | ||||||
| Long-term derivative instruments | 48,339 | 9,152 | ||||||
| Right of use lease asset | 6,369 | 4,499 | ||||||
| Other non-current assets | 152 | 83 | ||||||
| TOTAL ASSETS | $ | 2,812,839 | $ | 2,684,443 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 15,158 | $ | 28,352 | ||||
| Revenues and royalties payable | 85,099 | 82,600 | ||||||
| Accrued liabilities | 83,875 | 84,309 | ||||||
| Short-term derivative instruments | — | 23,609 | ||||||
| Asset retirement obligations | 4,462 | 3,660 | ||||||
| Income tax payable | 207 | 1,596 | ||||||
| Current portion of long-term debt | 59,042 | 59,042 | ||||||
| Other current liabilities | 2,390 | 1,741 | ||||||
| Total current liabilities | 250,233 | 284,909 | ||||||
| Non-current liabilities: | ||||||||
| Long-term debt, net | 700,755 | 848,560 | ||||||
| Long-term derivative instruments | 1,197 | 18,507 | ||||||
| Asset retirement obligations | 122,185 | 105,728 | ||||||
| Deferred income tax | 7,874 | 4,123 | ||||||
| Operating lease liability | 8,024 | 5,647 | ||||||
| Total non-current liabilities | 840,035 | 982,565 | ||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Unit holders' equity | ||||||||
| Unit holder contributions | 751,574 | 751,574 | ||||||
| Retained earnings | 970,997 | 665,395 | ||||||
| Total unit holders’ equity | 1,722,571 | 1,416,969 | ||||||
| TOTAL LIABILITIES AND UNIT HOLDERS' EQUITY | $ | 2,812,839 | $ | 2,684,443 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
WildFire Energy I LLC
Consolidated Statements of Operations
(In thousands)
| Years ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| REVENUES | ||||||||
| Oil | $ | 795,358 | $ | 894,727 | ||||
| Natural gas | 30,018 | 14,218 | ||||||
| NGLs | 39,564 | 29,150 | ||||||
| Other operating revenues | 33,187 | 31,132 | ||||||
| Total operating revenues | 898,127 | 969,227 | ||||||
| OPERATING COSTS AND EXPENSES | ||||||||
| Lease operating expenses | 119,245 | 112,510 | ||||||
| Gathering, processing and transportation expense | 303 | 510 | ||||||
| Taxes other than income | 70,501 | 75,170 | ||||||
| Other operating expenses | 15,506 | 16,303 | ||||||
| Depreciation, depletion, amortization and accretion | 275,363 | 244,142 | ||||||
| Exploration expenses | 6,061 | 10,977 | ||||||
| Transaction costs | 102 | 58 | ||||||
| General and administrative expenses | 29,088 | 22,302 | ||||||
| Total operating costs and expenses | 516,169 | 481,972 | ||||||
| Income from operations | 381,958 | 487,255 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Gain (loss) on derivative instruments | 166,816 | (35,006 | ) | |||||
| Interest expense | (82,700 | ) | (96,761 | ) | ||||
| Other income | 287 | 489 | ||||||
| Total other income (expense) | 84,403 | (131,278 | ) | |||||
| Income before income taxes | 466,361 | 355,977 | ||||||
| Income tax expense | (3,959 | ) | (4,268 | ) | ||||
| Net income | $ | 462,402 | $ | 351,709 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
WildFire Energy I LLC
Consolidated Statements of Unit Holders' Equity
(In thousands)
| Unit holders’ contributions | Retained earnings | Total unit holders' equity | ||||||||||
| Balance, December 31, 2023 | $ | 751,574 | $ | 392,086 | $ | 1,143,660 | ||||||
| Unit holders' contributions | — | — | — | |||||||||
| Unit holders' distributions | — | (78,400 | ) | (78,400 | ) | |||||||
| Net income | — | 351,709 | 351,709 | |||||||||
| Balance, December 31, 2024 | $ | 751,574 | $ | 665,395 | $ | 1,416,969 | ||||||
| Unit holders' contributions | — | — | — | |||||||||
| Unit holders' distributions | — | (156,800 | ) | (156,800 | ) | |||||||
| Net income | — | 462,402 | 462,402 | |||||||||
| Balance, December 31, 2025 | $ | 751,574 | $ | 970,997 | $ | 1,722,571 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
WildFire Energy I LLC
Consolidated Statements of Cash Flows
(In thousands)
| Years ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 462,402 | $ | 351,709 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation, depletion, amortization and accretion | 275,363 | 244,142 | ||||||
| Write-off expired oil and natural gas leases | 1,812 | 6,403 | ||||||
| Abandoned well expense | 678 | — | ||||||
| (Gain) loss on derivative instruments | (166,816 | ) | 35,006 | |||||
| Net cash (paid) received in settlement of commodity derivatives contracts | 19,810 | (45,111 | ) | |||||
| Settlements paid for asset retirement obligations | (1,635 | ) | (962 | ) | ||||
| Lease amortization | 184 | 254 | ||||||
| Amortization of debt issuance costs | 14,910 | 12,963 | ||||||
| Amortization of deferred acquisition payment | 7,961 | 11,600 | ||||||
| Deferred income tax | 3,751 | 2,738 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | 22,338 | (6,308 | ) | |||||
| Increase in prepaid expenses | (460 | ) | (497 | ) | ||||
| (Increase) decrease in inventory | (471 | ) | 15,167 | |||||
| (Decrease) increase in accounts payable | (2,557 | ) | 4,962 | |||||
| (Decrease) increase in accrued expenses | (4,122 | ) | 19,940 | |||||
| Net cash provided by operating activities | 633,148 | 652,006 | ||||||
| Cash flows from investing activities: | ||||||||
| Leasehold acquisition | (900 | ) | (865 | ) | ||||
| Leasehold sales proceeds | 250 | 297 | ||||||
| Proved property acquisition | (18,380 | ) | (249,878 | ) | ||||
| Drilling and development capital expenditures | (299,268 | ) | (236,193 | ) | ||||
| Other property and equipment expenditures | (1,427 | ) | (1,055 | ) | ||||
| Net cash used in investing activities | (319,725 | ) | (487,694 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Advances on revolving credit facility | 775,000 | 1,428,000 | ||||||
| Payments on revolving credit facility | (873,000 | ) | (2,034,000 | ) | ||||
| Payment of deferred acquisition cost | (60,000 | ) | (60,000 | ) | ||||
| Proceeds from issuance of 7.500% Senior Notes due 2029, net | — | 586,771 | ||||||
| Cash paid for deferred financing costs | (8,268 | ) | (363 | ) | ||||
| Unit holders’ distributions | (156,800 | ) | (78,400 | ) | ||||
| Net cash used in financing activities | (323,068 | ) | (157,992 | ) | ||||
| Net (decrease) increase in cash | (9,645 | ) | 6,320 | |||||
| Cash at beginning of period | 12,009 | 5,689 | ||||||
| Cash at end of period | $ | 2,364 | $ | 12,009 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
7
WildFire Energy I LLC
Notes to the Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Organization
WildFire Energy I LLC, a Delaware limited liability company (“WildFire” and together with its consolidated subsidiaries, the “Company”) is an independent energy company focused on the acquisition, exploration and production of oil and natural gas properties in the United States, primarily targeting the Eagle Ford, Woodbine and Austin Chalk formation in East Texas, through the application of modern technology and production optimization. The Company's operations are primarily in the upstream segment of the oil and natural gas industry.
As a holding company, WildFire has no operations and conducts all of its business through its consolidated direct wholly owned subsidiary, WildFire Intermediate Holdings LLC, and its consolidated indirect wholly owned subsidiary WildFire Energy Operating LLC.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. WildFire's sole material assets consist of ownership interests in its consolidated wholly owned subsidiary, WildFire Intermediate Holdings LLC, and there is no material difference of the operations, cash flows, material assets or liabilities between WildFire and WildFire Intermediate Holdings, LLC.
Use of Estimates
The preparation of the Company's consolidated 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. Items subject to such estimates and assumptions include cash flow estimates used in impairment tests of long-lived assets, asset retirement obligations, assigning fair value and allocation of purchase price in connection with acquisitions, accrued liabilities, valuation of derivative instruments, accrued revenue and related receivables and depreciation, depletion and amortization. Although management believes these estimates are reasonable, actual results could differ from these estimates.
The Company is not aware of any material revisions to any of its estimates; however, there may be future revisions to the Company's estimates as a result of new accounting pronouncements, changes in ownership interests or other corrections and adjustments common in the oil and natural gas industry, which may relate to prior periods. These adjustments cannot be currently estimated but will be recorded in the period in which the adjustments are known.
Cash and Cash Equivalents
The Company considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.
Accounts Receivable
The Company’s accounts receivables consist mainly of trade receivables from commodity sales, joint interest billings due from co-owners of properties operated by the Company, and trade receivables from sand sales generated by the Company's wholly owned subsidiary, Burleson Sand LLC. For receivables from joint interest owners, the Company typically has the ability to withhold future revenue disbursements to recover non-payment of joint interest billings. Generally, the Company’s oil receivables are collected within one month of sale, and gas and NGLs receivables within two months of sale. Proceeds from the sand mine operations are typically collected within three months of sale. The Company assesses the collectability of accounts receivable based on a broad range of reasonable and forward-looking information including historical losses, current economic conditions, future forecasts and contractual terms. The Company's historical credit losses have been immaterial and are expected to remain so in the future assuming no substantial changes to the economic conditions, business or creditworthiness of the Company. The allowance for credit losses is presented as a reduction to the accounts receivable balance in "Accounts receivable, net" on the accompanying consolidated balance sheets.
8
Inventories
The Company's inventory consists of sand produced from our mining operations, drill pipe, casing, tubing, and other well equipment and materials to be used in our drilling and completion activities. Inventory balances are reduced by material transfers for inventory usage and are recorded at the lower of cost or net realizable value.
Oil and Natural Gas Properties
The method of accounting for oil and natural gas properties determines what costs are capitalized and how these costs are ultimately matched with revenues and expenses. The Company uses the successful efforts method of accounting for oil and natural gas properties. For more information see Note 5. Oil and Natural Gas properties.
Other Property and Equipment
Other property and equipment primarily consist of equipment and processing facilities used in sand extraction and processing, natural gas gathering pipelines, compressors, and water infrastructure assets ("Other Operating Assets"). These assets are depreciated using the straight-line method over their estimated useful lives, ranging from 10 to 35 years.
The Company evaluates Other Operating Assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors used to assess recoverability and determine fair value include, but are not limited to, estimated future revenues, capital expenditures, operating costs, and discount rates appropriate to the associated risks.
Other property and equipment also include furniture and fixtures, buildings, automobiles, leasehold improvements, miscellaneous office equipment, and information technology software/licenses, which are recorded at cost. These assets are depreciated on a straight-line basis over their estimated useful lives, typically ranging from five to fifteen years.
When property and equipment are sold or retired, the related capitalized costs and accumulated depreciation are removed from the accounts. Any resulting gain or loss is recognized in the period of disposition.
Debt Issuance Costs
Debt issuance costs associated with line-of-credit arrangements, including arrangements with no outstanding borrowings, are classified as an asset and amortized over the term of the arrangements. The Company’s policy is to capitalize up front commitment fees and other direct expenses associated with its line-of-credit arrangement and then amortize such costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings.
Asset Retirement Obligations
Asset retirement obligations ("AROs") relate to future costs associated with the plugging and abandonment of oil and natural gas wells, removal of equipment and facilities from leased acreage and returning such land to its original condition. The fair value of a liability for an ARO is recorded in the period in which it is incurred (typically when a well is completed or acquired or an asset is installed at the production location), and the cost of such liability increases the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period through charges to depreciation, depletion, amortization and accretion expense, and the capitalized cost is depleted on a units-of-production basis over the proved developed reserves of the related asset. Revisions typically occur due to changes in estimated abandonment costs or well economic lives, or if federal or state regulators enact new requirements regarding the abandonment of wells, and such revisions result in adjustments to the related capitalized asset and corresponding liability.
Fair Value Measurement
ASC 820, defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes and ranks the level of observability of inputs used to measure investments at fair value based upon the transparency of inputs to the valuation of an asset or liability.
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The three-level fair value hierarchy for disclosure of fair value measurements defined by ASC 820 is as follows:
Level 1 – Unadjusted, quoted Prices in active markets for Identical assets or liabilities at the measurement date.
Level 2 – Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.
Level 3 – Valuations that require inputs that are both unobservable and significant to the fair value measurement. Valuation under Level 3 generally involves a significant degree of judgment from management.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level.
Derivative Instruments
The Company enters into derivative contracts, primarily swaps, to manage its exposure to commodity price risk. All derivative instruments are recorded on the balance sheet as either an asset or liability and measured at fair value. Gains and losses from changes in the fair value of derivative instruments are recognized immediately in earnings. The Company does not enter into derivative instruments for speculative or trading purposes.
Acquisitions
The Company accounts for third-party acquisition under the acquisition method, which among other things, requires the Company to determine if an asset or a business has been acquired.
In an asset acquisition, assets acquired and liabilities assumed are recorded at the acquisition cost as of the acquisition date. Any transaction costs related to the acquisition are capitalized as a component of the purchase price.
In a business combination, assets acquired and liabilities assumed are measured and recorded at fair value as of the acquisition date, recording goodwill for amounts paid in excess of fair value. The fair value of the asset acquired and liabilities assumed is measured based on various estimates. These estimates are based on key assumptions related to the business combination, including review of publicly disclosed information for other acquisitions in the industry, historical experience of the company, data that was available through the public domain and due diligence reviews of the acquired businesses. Acquisition related transaction costs and acquisition related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.
Revenue Recognition
The Company's revenues are comprised of revenue from customers and include the sale of oil, natural gas, NGLs and other operating revenues. The Company believes that the disaggregation of revenue into these four major categories, as presented in the consolidated statements of operations, appropriately depicts the nature of each revenue stream.
Oil, Natural Gas, and NGL Sales
Revenues from the sale of oil, natural gas and NGLs are recognized when production is sold to customers in fulfillment of performance obligations under the terms of agreed contracts. The Company fulfills its performance obligations under its customer contracts through delivery of oil, natural gas and NGLs and revenues are recorded on a monthly basis and the Company receives payment from one to two months after delivery. The Company recognizes revenues from the sale of oil, natural gas and NGLs using the sales method of accounting, whereby revenue is recorded based on the Company’s share of volume sold, regardless of whether the Company has taken its proportional share of volume produced.
Sales of oil, natural gas and NGLs are recognized at the point the control of the commodity is transferred to the customer and the Company has no further obligations to perform related to the sale. The majority of the Company’s contracts contain variable consideration based on pricing provisions that are tied to a commodity market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil or natural gas and prevailing supply and demand conditions. The nature of the contracts with customers does not require the Company to estimate that variable consideration or to estimate the nature of the transaction price attributable to future performance obligations for accounting purposes. As a result, the price of oil, natural gas and NGLs fluctuate to remain competitive with other available supplies.
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Under its oil sales contracts, the Company generally sells oil to the purchaser at the wellhead and collects a contractually agreed upon index price, net of pricing differentials. The Company recognizes revenue based on the contract price when control transfers to the purchaser at the wellhead. The Company has determined that its oil sales contracts represent performance obligations that are satisfied at the point in which control of the oil transfers to the purchaser.
Under the Company’s natural gas sales contracts, the Company delivers the natural gas to the purchaser at an agreed upon delivery point. The purchaser gathers and processes the natural gas and remits proceeds to the Company for the resulting sales of NGLs and residue gas, net of processing costs. In these scenarios, the Company has evaluated the point at which control of the hydrocarbons transfer to the customer. The Company concluded that for its contracts, the midstream processing entity is its customer and controls the hydrocarbons and, as a result, recognizes natural gas and NGLs revenues based on the net amount of the proceeds received from the midstream processing entity. Therefore, the Company has determined that the performance obligation for its natural gas sales contracts is the point at which natural gas is delivered to the purchaser at an agreed upon delivery point.
Revenue from the sale of natural gas is recorded on the basis of natural gas actually sold by the Company. If aggregate sales volumes for a well are greater (or less) than the Company’s proportionate share of production from the well, a liability (or receivable) is established to the extent there are insufficient proved reserves available to make up the overproduced (or underproduced) imbalance. Imbalances have not been significant in the periods presented.
The Company records revenue on its oil, natural gas and NGL sales at the time production is delivered to the purchaser. However, settlement statements for oil, natural gas and NGL sales may not be received for 30 to 60 days after the date production is delivered. As a result, the Company is required to estimate the amount of production delivered to the customer and the net commodity price that will be received for the sale of these commodity products. The Company records the differences between the revenue estimated and the actual amounts received for product sales in the month that payment is received from the customer. Differences between revenue estimates and actual revenue received historically have not been significant.
Other Operating Revenues
Other operating revenues primarily consist of sand sales from the Company's wholly owned subsidiary, Burleson Sand LLC . The revenue is generated from processing and selling sand, which is used as a proppant in the hydraulic fracturing process.
Revenues from the sale of sand is recognized when control of the processed sand is transferred to the customer. The Company fulfills its performance obligations under the terms of the customer's contract when control of the processed sand transfers to the customer, which generally occurs when the sand is loaded onto the customer's truck at the loadout facility. The transaction price is determined based on contractual arrangements and is calculated on a per ton basis.
Revenues are recognized when control of the processed sand is transferred to customer trucks at the loadout facility of the sand mine. For the years ended December 31, 2025 and 2024, revenue from the Company's sand mine operations were $30.1 million and $27.6 million, respectively.
Leases
The Company currently has leases associated with contracts for office space, vehicle fleet, drilling rigs, and the use of well equipment. For leases with a primary term of more than 12 months, a right-of-use asset and the corresponding lease liability is recorded. The Company determines at inception if an arrangement is an operating or financing lease. All of the Company's leases are operating leases.
Right-of-use assets and lease liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term. The majority of leases do not include an implicit interest rate. When the lease contract does not contain an implicit interest rate, the Company uses its incremental borrowing rate at the time of lease inception to compute the fair value of the lease payments. Leased assets may be used in joint operations with other working interest owners. When the Company is the operator in a joint arrangement, the right-of-use assets and lease liabilities are determined on a gross basis. Certain leases contain variable costs above the minimum required payments and are not included in the right-of-use assets or lease liabilities. Options to extend or terminate a lease are included in the lease term when it is reasonably certain the Company will exercise that option.
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For operating leases, lease cost is recognized on a straight-line basis over the term of the lease. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The Company elected a practical expedient to not separate non-lease components from lease components for the following asset types: office space, drilling rigs, and field equipment.
Concentration of Credit Risk
The Company’s cash and cash equivalents, accounts receivable, long-term debt and derivative contracts are exposed to concentrations of credit risk. The Company manages and controls this risk by placing these funds with major institutions and monitoring the creditworthiness of the Company’s counterparties.
The derivative contracts held by the Company are with counterparties who are a participant in the Company’s credit facility and have investment-grade ratings from Moody’s and Standard and Poor’s. At times, cash balances held at commercial banks may exceed the Federal Deposit Insurance Corporation limit. The Company has not experienced any credit losses to date.
The Company is exposed to credit risk in the event of nonpayment by counterparties, all of which are concentrated in energy related industries. The creditworthiness of customers and other counterparties is subject to continuing review. For the year ended December 31, 2025, Energy Transfer Crude Marketing, LLC accounted for approximately 85% of the Company’s total net revenues and approximately 64% of the Company's accrued oil and gas revenue receivables. For the year ended December 31, 2024, Energy Transfer Crude Marketing, LLC accounted for approximately 90% of the Company’s total net revenues and approximately 76% of the Company's accrued oil and gas revenue receivables.
Commitment and Contingencies
Accruals for loss contingencies arising from claims, assessments, litigation, environmental, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information become available or circumstances change. Refer to Note 9 - Commitments and Contingencies for additional information.
Income Taxes
The Company is a Limited Liability Company (LLC) and is treated as a pass-through entity for U.S. federal income tax purposes. As a result, federal income taxes are the responsibility of its individual members, and the accompanying financial statements do not include a provision or liability for federal income taxes.
The Company is subject to the Texas margin tax, which qualifies as an income tax under ASC 740. The Texas margin tax is imposed at a statutory rate of up to 0.75% on the portion of income apportioned to Texas. Accordingly, the Company recognizes current and deferred taxes for temporary differences between the book and tax basis of assets and liabilities to the extent applicable to this tax.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company files state tax returns in jurisdictions where it has tax obligations and an informational federal return, as required for a pass-through entity.
Segment Reporting
The Company operates as a single reportable segment focused on the acquisition, development, exploration, and production of oil and natural gas properties (the “Operating Segment”). The Company's operations are concentrated in one geographic area, the United States. Revenues from the Operating Segment, including sales of oil, natural gas, and NGLs, are disaggregated and presented in the consolidated statements of operations.
The Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, evaluates performance and makes key operating decisions using net income and significant expenses reported in the consolidated statements of operations. Additionally, the CODM utilizes cash flows reported in the consolidated statement of cash flows to guide investment decisions, including future development and capital expenditures, evaluating potential acquisitions, optimizing capital returns, and managing strategic sources and uses of capital.
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Recent Accounting Pronouncements
In March 2024, the FASB issued ASU 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which provides illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of ASC 718, Compensation-Stock Compensation. The guidance is effective for the Company for annual and interim periods beginning after December 15, 2025. The Company is evaluating the impact of this standard on its financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure. The guidance aims to improve the effectiveness of income tax disclosure primarily through improvements to the income tax rate reconciliation disclosure along with information on income taxes paid. The guidance is effective for the Company for annual and quarterly periods beginning after December 15, 2025, with early adoption permitted. The Company elected to adopt this guidance for the year ended December 31, 2025. As the Company is a pass-through entity for federal income tax purposes and is primarily subject to state franchise taxes, the adoption of this standard did not have a material impact on its consolidated financial statements or disclosures.
2. Acquisitions and Divestitures
2025 Bolt-on Asset Acquisitions
During the year ended December 31, 2025, WildFire completed eight bolt-on acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of approximately $4.1 million. These transactions were recorded as asset acquisitions in accordance with ASC Topic 805, Business Combinations.
Apache Acquisition
On June 12, 2024, WildFire closed on a purchase and sale agreement ("Apache Acquisition") to purchase Apache Corporation's ("Apache") interest in certain oil and natural gas producing properties in the Eagle Ford Basin in East Texas, including approximately 213,000 net acres and 156 net wells. WildFire closed on the Apache Acquisition for cash consideration of approximately $302.0 million due at closing, subject to certain purchase price adjustments.
The Apache Acquisition was accounted for as an asset acquisition. The purchase price was allocated to the underlying assets acquired and liabilities assumed at the closing date. Costs directly related to the acquisition were capitalized as a component of the purchase price.
Pro Forma Condensed Results of Operations
The following unaudited supplemental pro forma condensed results of operations present consolidated information for the year ended December 31, 2024 as if the Apache Acquisition had been completed on January 1, 2024. This information was derived from the historical statements of revenues and direct operating expenses of Apache, and the consolidated statements of operations of WildFire, with adjustments to include:
| · | Depletion expense on the adjusted basis of the acquired properties, |
| · | Accretion expense for the assumed asset retirement obligations, and |
| · | Interest expense on new borrowings under the revolving credit facility related to the acquisition. |
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These unaudited supplemental pro forma results are provided for illustrative purposes only and are not indicative of the actual results that would have been achieved for the periods presented or that may be achieved in the future. Actual future results may differ significantly from those presented in these unaudited pro forma results (in thousands):
| Year Ended December 31, | ||||
| 2024 | ||||
| Total operating revenues | $ | 1,027,204 | ||
| Income before income taxes | 364,391 | |||
| Net income | 360,123 | |||
3. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations and uses derivative instruments to manage its commodity price risk.
Commodity Derivative Instruments
The Company enters into derivative contracts, primarily swaps, to achieve a more predictable cash flow by reducing its exposure to commodity price volatility. The derivative instruments are not formally designated as hedges for accounting purposes. Commodity derivative contracts are thereby used to ensure adequate cash flow to fund the Company’s capital programs and to manage returns on acquisitions and drilling programs. Swaps are designed to establish a fixed price for anticipated future oil and natural gas production. The Company does not enter into derivative contracts for speculative or trading purposes.
The Company had the following open crude oil and natural gas derivative contracts at December 31, 2025:
| 2026 | 2027 | 2028 | 2029 | |||||||||||||
| Crude Oil Derivative Contracts: | ||||||||||||||||
| Fixed price swap contracts | ||||||||||||||||
| Volume (Bbl) | 7,968,775 | 5,245,795 | 1,451,688 | — | ||||||||||||
| Weighted-average fixed price | $ | 64.81 | $ | 64.95 | $ | 65.81 | $ | — | ||||||||
| Natural Gas Derivative Contracts: | ||||||||||||||||
| Fixed price swap contracts | ||||||||||||||||
| Volume (MMBtu) | 8,613,232 | 7,596,996 | 4,006,761 | 1,719,975 | ||||||||||||
| Weighted-average fixed price | $ | 4.01 | $ | 3.82 | $ | 3.67 | $ | 3.77 | ||||||||
| Basis swap | ||||||||||||||||
| Volume (MMBtu) | 9,799,819 | 7,475,359 | 3,298,473 | — | ||||||||||||
| Weighted-average fixed price | $ | (0.38 | ) | $ | (0.35 | ) | $ | (0.27 | ) | $ | — | |||||
| Costless Collars | ||||||||||||||||
| Volume (MMBtu) | 244,858 | 46,317 | — | — | ||||||||||||
| Bought Floor | $ | 2.90 | $ | 2.90 | $ | — | $ | — | ||||||||
| Sold Ceiling | $ | 4.85 | $ | 4.85 | $ | — | $ | — | ||||||||
Balance Sheet Presentation
The Company’s commodity derivatives are measured at fair value and are included in the accompanying consolidated balance sheets as a derivative asset or liability. The Company had a net derivative asset of $112.2 million as of December 31, 2025, and a net derivative liability of $27.8 million as of December 31, 2024. The following table summarizes both: (i) the gross fair value of derivative instruments by the appropriate balance sheet classification when the derivative instruments are subject to netting arrangements and qualify for net presentation in the balance sheet and (ii) the net recorded fair value as reflected on the balance sheet as of December 31, 2025 and 2024 (in thousands). There was no cash collateral received or pledged associated with our derivative instruments since the counterparties to our derivative contracts are lenders under our collective credit agreements.
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| Asset Derivatives | Liability Derivatives | |||||||||||||||||
| Type | Balance Sheet Location | 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Commodity contracts | Short-term derivative instruments | $ | 65,586 | $ | 7,553 | $ | 503 | $ | 25,966 | |||||||||
| Netting arrangements | Short-term derivative instruments | (503 | ) | (2,357 | ) | (503 | ) | (2,357 | ) | |||||||||
| Net recorded fair value | $ | 65,083 | $ | 5,196 | $ | — | $ | 23,609 | ||||||||||
| Commodity contracts | Long-term derivative instruments | $ | 49,878 | $ | 13,313 | $ | 2,736 | $ | 22,668 | |||||||||
| Netting arrangements | Long-term derivative instruments | (1,539 | ) | (4,161 | ) | (1,539 | ) | (4,161 | ) | |||||||||
| Net recorded fair value | $ | 48,339 | $ | 9,152 | $ | 1,197 | $ | 18,507 | ||||||||||
None of the Company’s derivative instruments contain credit-risk-related contingent features. The counterparties to the Company’s derivative contracts are high credit-quality financial institutions that are lenders under the Company’s credit agreement. The Company uses only credit agreement participants to hedge with, since these institutions are secured equally with the holders of the Company’s bank debt, which eliminates the potential need to post collateral when the Company is in a derivative liability position.
Gain & (Loss) on Derivatives
All gains and losses, including changes in the derivative instruments’ fair values, are included as a component of “Other income (expense)” in the Consolidated Statements of Operations. The following table details the gains and losses related to derivative instruments for the years ended December 31, 2025 and 2024 (in thousands):
| Years ended | ||||||||||
| December 31, | ||||||||||
| Statement of Operations Location | 2025 | 2024 | ||||||||
| Realized cash settlement gains (losses) | Gain (loss) on derivative instruments | $ | 26,823 | $ | (44,912 | ) | ||||
| Unrealized mark-to-market derivative gains | Gain (loss) on derivative instruments | $ | 139,993 | $ | 9,907 | |||||
4. Fair Value Measurements
Fair Value on a Recurring Basis
Derivative Financial Instruments
Derivative financial instruments are carried at fair value and measured on a recurring basis. The derivative financial instruments consist of fixed price and basis swap agreements. The Company’s commodity price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves. These inputs are designated as Level 2 within the valuation hierarchy.
The fair values of derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments in liability positions include measures of the Company’s nonperformance risk. These measurements were not material to the Consolidated Financial Statements.
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The following table summarizes the fair value of the Company’s financial assets and liabilities, by level within the fair value hierarchy (in thousands):
| December 31, 2025 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Financial assets | ||||||||||||||||
| Derivative asset - current | $ | — | $ | 65,083 | $ | — | $ | 65,083 | ||||||||
| Derivative asset - non-current | — | 48,339 | — | 48,339 | ||||||||||||
| Total financial assets | — | 113,422 | — | 113,422 | ||||||||||||
| Financial liabilities | ||||||||||||||||
| Derivative liability - current | — | — | — | - | ||||||||||||
| Derivative liability - non-current | — | 1,197 | — | 1,197 | ||||||||||||
| Total financial liabilities | $ | — | $ | 1,197 | $ | — | $ | 1,197 | ||||||||
| December 31, 2024 | ||||||||||||||||
| Financial assets | ||||||||||||||||
| Derivative asset - current | $ | — | $ | 5,196 | $ | — | $ | 5,196 | ||||||||
| Derivative asset - non-current | — | 9,152 | — | 9,152 | ||||||||||||
| Total financial assets | — | 14,348 | — | 14,348 | ||||||||||||
| Financial liabilities | ||||||||||||||||
| Derivative liability - current | — | 23,609 | — | 23,609 | ||||||||||||
| Derivative liability - non-current | — | 18,507 | — | 18,507 | ||||||||||||
| Total financial liabilities | $ | — | $ | 42,116 | $ | — | $ | 42,116 | ||||||||
Commodity derivative instrument models consider various assumptions, including quoted forward prices for commodities, time value and volatility. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are therefore designated as Level 2 within the valuation hierarchy. The discount rates used in the fair values of these instruments include a measure of either the Company’s or the counterparty’s nonperformance risk, as appropriate. The Company utilizes its counterparty’s valuations to assess the reasonableness of its own valuations.
There were no transfers between fair value hierarchy levels for the years ended December 31, 2025 and 2024.
Fair Value on a Nonrecurring Basis
The Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities, including oil and natural gas properties, business combination and asset retirement obligations. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value estimation when acquisitions occur or asset retirement obligations are recorded. These are considered Level 3 valuations. See further discussion in Note 2, "Acquisitions and Divestitures".
Asset retirement obligations are recorded at fair value in the period in which the liability is incurred. Fair value is determined by calculating the present value of estimated future cash flows related to the liability. To estimate the future ARO, management must make judgments and estimates regarding the timing and existence of a liability and what constitutes sufficient restoration under the current regulatory requirements. Fair value calculations inherently involve numerous assumptions and judgments such as the ultimate costs, inflation factors, credit-adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments.
Items Not Recorded at Fair Value
The carrying amounts reported on the consolidated balance sheets for cash, accounts receivable, prepaid expenses, other current assets, accounts payable, revenues and royalties payable, accrued expenses and other current liabilities approximate their fair values.
The Company has not elected to account for its debt instruments at fair value. Borrowing under the revolving credit facility bear interest at floating market rates, therefore the carrying amount and fair value were approximately equal as of December 31, 2025 and 2024. The 7.5% Unsecured Senior Notes due 2029 had a carrying value of $589.6 million, net of $10.4 million in deferred financing costs, and an estimated fair value of $605.7 million as of December 31, 2025.
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5. Oil and Natural Gas Properties
The Company follows the successful efforts method of accounting for its oil and natural gas properties. Under this method, costs to acquire oil and natural gas properties, drill and equip exploratory wells that discover proved reserves, and drill and equip development wells are capitalized. Costs of drilling exploratory wells are capitalized as wells-in-progress until a determination is made as to whether the well has found proved reserves. Exploration costs, such as geological and geophysical expenses, delay rentals, and exploration overhead, are expensed as incurred. During the year ended December 31, 2025, the Company successfully completed one exploratory well. Total costs of $10.0 million associated with this well were capitalized and transferred to proved oil and natural gas properties during the period. As of December 31, 2025 and 2024, there were no exploratory well costs capitalized pending the determination of proved reserves.
Proceeds from the sale of individual properties and the related capitalized costs are credited to the net book value of the amortization group, provided this does not materially impact the depletion rate of the group. Generally, no gain or loss is recognized unless an entire depletion group is sold. However, a gain or loss may be recognized on the sale of less than an entire depletion group if the transaction is significant enough to materially affect the depletion rate of the remaining properties in the group.
Costs incurred to maintain wells and related equipment, lease and well operating costs, and other exploration costs are expensed as incurred.
Lease acquisition costs and development costs of proved oil and natural gas properties are depleted using the units-of-production method at the depletion group level. Total proved reserves are used as the basis for depleting lease acquisition costs, while proved developed reserves are used for depleting development costs. Properties are grouped based on reasonable aggregation of those with a common geological structure or stratigraphic condition, such as a reservoir or field.
Depletion expense for oil and natural gas properties and related equipment was $264.2 million and $234.1 million for the years ended December 31, 2025 and 2024, respectively.
Proved oil and natural gas properties
The Company assesses its proved oil and natural gas properties for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. The impairment charge reduces the carrying value of the assets to their estimated fair value. These fair value measurements are classified as Level 3 in the fair value hierarchy and include many unobservable inputs. Fair value is calculated as the estimated discounted future net cash flows attributable to the assets. The Company’s primary assumptions in preparing the estimated discounted future net cash flows to be recovered from oil and natural gas properties are based on (i) proved reserves, (ii) forward commodity prices and assumptions as to costs and expenses, and (iii) the estimated discount rate that would be used by potential purchasers to determine the fair value of the assets.
Unproved properties
Unproved properties consist of costs to acquire undeveloped leases as well as costs to acquire unproved reserves. Unproved oil and natural gas leases are generally for a primary term of three to five years. In most cases, the term of the unproved leases can be extended by paying delay rentals, meeting contractual drilling obligations, or by the presence of producing wells on the leases. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and natural gas properties. Costs of maintaining and retaining unproved properties, as well as impairment of unsuccessful leases, are included in “Exploration expenses” in the consolidated statements of operations.
Unproved properties are assessed for impairment at least annually on a property-by-property basis based on the Company's current exploration plans, and based on remaining lease terms, commodity price outlook, future plans to develop acreage, drilling results and reservoir performance of wells in the area.
Impairment to oil and natural gas properties
The Company recorded no non-cash asset impairment charges for the years ended December 31, 2025 and 2024.
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6. Asset Retirement Obligations
The Company’s asset retirement obligations represent the present value of estimated future costs associated with the plugging and abandonment of oil and natural gas wells, removal of equipment and facilities from leased acreage, and land restoration in accordance with applicable local, state and federal laws. The Company determines its asset retirement obligation amounts by calculating the present value of the estimated future cash outflows associated with its plug and abandonment obligations. The associated asset retirement costs are capitalized as part of the carrying amount of proved properties. Subsequent to initial measurement, the ARO liability is required to be accreted each period. The following table provides a reconciliation of the Company’s asset retirement obligations (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Asset retirement obligation, January 1 | $ | 109,388 | $ | 88,402 | ||||
| Liabilities incurred for new wells and facilities construction | 9,565 | 1,260 | ||||||
| Liabilities incurred for acquired wells | 2,358 | 13,658 | ||||||
| Reduction due to plugged and abandoned wells | (1,635 | ) | (962 | ) | ||||
| Reduction due to sold wells | (62 | ) | - | |||||
| Revision of estimates | (1,298 | ) | (169 | ) | ||||
| Accretion | 8,331 | 7,199 | ||||||
| Asset retirement obligation, end of period | $ | 126,647 | $ | 109,388 | ||||
7. Long–Term Debt
Long-term debt consisted of the following as of December 31, 2025 and 2024 (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Current portion of deferred acquisition costs | $ | 59,042 | $ | 59,042 | ||||
| Current portion of long-term debt | $ | 59,042 | $ | 59,042 | ||||
| Revolving credit facility | $ | 70,000 | $ | 168,000 | ||||
| 7.50% Senior Notes due 2029, net, 8.03% effective rate | 589,567 | 587,332 | ||||||
| Deferred acquisition costs, 7.26% effective rate | 41,188 | 93,228 | ||||||
| Long-term debt | $ | 700,755 | $ | 848,560 | ||||
| Total debt | $ | 759,797 | $ | 907,602 | ||||
Wildfire Revolving Credit Facility
The Company has a credit agreement with a syndicate of 19 banks, including JPMorgan Chase Bank, N.A., as the administrative agent, that provides for a secured revolving credit facility, maturing on March 19, 2029 ("the "Credit Agreement"). The Company may extend the maturity date by providing written notice to the administrative agent. As of December 31, 2025, the Credit Agreement had a borrowing base and an elected commitment of $1.5 billion. As of December 31, 2025, the Company had $70.0 million drawn and over $1.4 billion in available borrowing capacity under the revolving credit facility.
The borrowing base is determined at the discretion of the lenders and is subject to scheduled redeterminations semiannually on May 1 and November 1. The Credit Agreement also allows for two optional interim borrowing base redeterminations, one at the request of the Company and one at the request of the lenders. The borrowing base depends on, among other factors, the quantities of the Company's proved oil and natural gas reserves, their associated cash flows, and hedge positions. Upon a redetermination, if the outstanding borrowings exceed the revised borrowing base, the Company could be required to immediately repay a portion of the outstanding balance. The next scheduled redetermination is expected to occur on May 1, 2026. Borrowings under the Credit Agreement are collateralized by substantially all of the Company's assets.
Pursuant to the Senior Notes Offering in September 2024, the Company entered into the First Amendment to its Credit Agreement (the "First Amendment"). The First Amendment, among other things, permits the issuance of up to $650 million in senior notes without a reduction to the borrowing base, provided that 75% of the net cash proceeds from the issuance are used to repay a portion of the outstanding borrowings under the revolving credit facility.
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In November 2025, in connection with the fall borrowing base redetermination, the Company entered into the third amendment (the “Third Amendment”) to its senior secured revolving credit facility. Among other things, the Third Amendment extended the maturity date of the facility from March 19, 2027, to March 19, 2029, reduced the applicable interest rate margins, allowed for more flexibility for term loan borrowings, and reaffirmed both the borrowing base and elected commitments at $1.5 billion.
Borrowings under the Credit Agreement may be Term Benchmark Loans or Alternate Base Loans. Interest is payable at the end of the applicable interest period for Term Benchmark Loans and quarterly for Alternate Base Loans. Term Benchmark Loans bear interest at SOFR plus an applicable margin that varies based on the percentage of elected commitments utilized, plus an additional 10 basis point credit spread adjustment. Alternate Base Loans bear interest at a rate per annum equal to the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5%, or (iii) the adjusted Term SOFR rate for a one-month interest period plus 1%, plus an applicable margin that varies based on the percentage of elected commitments utilized. Commitment fees are 0.50%, regardless of the utilization level. The following table provides the Borrowing Base Utilization Margins as defined in the Fourth Amendment:
| Term | ||||||||||||
| Benchmark | Alternate Base | Commitment | ||||||||||
| Borrowing Base Utilization | Loans and RFR | Loans | Fee | |||||||||
| Less than or equal to 25% | 2.25 | % | 1.25 | % | 0.375 | % | ||||||
| Greater than 25%, but less than or equal to 50% | 2.50 | % | 1.50 | % | 0.375 | % | ||||||
| Greater than 50%, but less than or equal to 75% | 2.75 | % | 1.75 | % | 0.50 | % | ||||||
| Greater than 75%, but less than or equal to 90% | 3.00 | % | 2.00 | % | 0.50 | % | ||||||
| Greater than 90% | 3.25 | % | 2.25 | % | 0.50 | % | ||||||
The Credit Agreement contains restrictive covenants that may limit the Company’s ability to, among other things, incur additional indebtedness, sell assets, make loans, make investments, enter into mergers, enter into hedging contracts, incur liens, and engage in certain other transactions without prior lender consent. Additionally, it limits the Company’s ability to make distributions to investors unless it maintains certain financial covenants as defined in the Credit Agreement.
The Credit Agreement also requires the Company to maintain compliance with the following financial ratios as of the end of each quarter:
(i) a current ratio, which is the ratio of consolidated current assets (including an add-back of unused commitments under the revolving credit facility and excluding non-cash derivative assets) to consolidated current liabilities (excluding non-cash derivative liabilities), of not less than 1.0 to 1.0; and
(ii) a Consolidated Total Leverage Ratio, as defined in the Credit Agreement, which is the ratio of total debt to the last four quarters' consolidated EBITDAX for the rolling period then ending, of not greater than 3.0 to 1.0.
The Company was in compliance with the covenants and the applicable financial ratios described above as of December 31, 2025 and 2024.
For the years ended December 31, 2025 and 2024, interest expense and commitment fees incurred on the revolving credit facility were $15.8 million and $61.4 million, respectively, net of capitalized interest of $3.3 million and $1.5 million, respectively. For years ended December 31, 2025 and 2024, the weighted average interest rate on borrowings under the revolving credit facility averaged 6.88% and 8.73% per annum, respectively, which excluded commitment fees and amortization of deferred financing costs.
7.5% Unsecured Senior Notes due 2029
On September 26, 2024, WildFire issued $600 million aggregate principal amount of unsecured 7.5% senior notes due 2029 (the "Notes") for net proceeds of $588.0 million, after deducting commissions and transaction costs (the "Notes Offering"). The net proceeds from the offering were used to repay a portion of the outstanding borrowing under the revolving credit facility.
In connection with the completion of the Notes Offering, WildFire, entered into an indenture, dated as of September 26, 2024 (the "Indenture"), among WildFire, its subsidiaries ("Guarantors"), and U.S. Bank Trust Company, National Association, as Trustee.
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The notes will mature on October 15, 2029 with interest accruing at a rate of 7.5% per annum in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2025. Before October 15, 2026, the Company may redeem some or all of the Notes at a redemption price equal to 100% of the aggregate principal amount of the Notes redeemed plus applicable premium, as defined in the Indenture, and any accrued and unpaid interest. Alternatively, the Company can redeem up to 40% of the aggregate principal amount with equity offering proceeds at a redemption price equal to 107.5% of the aggregate principal amount of the Notes plus accrued and unpaid interest if at least 60% of the aggregate principal amount of the Notes remains outstanding immediately after such redemption and the redemption occurs within 180 days of the closing date of such offering. The Company may redeem, at its option, all or part of the Notes at any time on or after October 15, 2026, at the redemption price of 103.75% and 101.87% in 2026 and 2027, respectively, and at a redemption price of 100.00% thereafter plus accrued and unpaid interest. Upon a Change of Control event, as defined in the indenture, the Company may be required to offer to repurchase the Notes on terms and conditions set forth in detail in the Indenture.
The Notes are guaranteed on a senior unsecured basis by the Company and its subsidiaries and may be guaranteed by the Company's future restricted subsidiaries. The Notes are unsecured, rank equally in right of payment with all existing and future senior unsecured indebtedness of the Company and the Guarantors, and rank senior in right of payment to any future subordinated indebtedness of the Company and the Guarantors. The Notes will rank effectively subordinated in right of payment to all of our existing and future secured indebtedness of the Company and the Guarantors, including indebtedness under the revolving credit facility, to the extent of the value of the assets securing such indebtedness. The Notes will rank structurally subordinated to all existing and future indebtedness, claims of holders of preferred stock and other liabilities of any non-guarantor subsidiaries (other than indebtedness and other liabilities owed to the Company).
The Indenture restricts the Company's ability and the ability of its restricted subsidiaries, as defined in the indenture, including the Guarantors, to: (i) incur or guarantee additional indebtedness; (ii) pay dividends or make any other distributions to any of the restricted subsidiaries that is a guarantor; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) consolidate, merge or transfer all or substantially all of its assets; (vii) engage in transactions with affiliates; and (viii) create unrestricted subsidiaries. These restrictions will be suspended if the Notes achieve an investment grade Rating, as defined in the indenture, or better from two of three of Moody’s Investors Service, Inc., S&P Global Ratings, or Fitch Ratings, Inc.
The Indenture contains customary events of default (each an “Event of Default”). If an Event of Default occurs and is continuing, the Trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Notes may declare the unpaid principal of, premium, if any, and accrued but unpaid interest on, all the Notes then outstanding to be due and payable immediately. Upon such a declaration, such principal, premium, if any, and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy or insolvency of the Company or any Significant Subsidiary (as defined in the Indenture) occurs, the principal of, premium, if any, and the interest on, all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.
In connection with the offering, the Company incurred commissions and transaction costs of approximately $13.3 million. These costs are capitalized and amortized using the effective interest rate method over the term of the Notes and are included in Consolidated Statement of Operations. The unamortized portion of these deferred financing costs is included as a reduction to the carrying value of the Notes.
For the years ended December 31, 2025 and 2024, the Company recorded a total interest expense of $47.3 million and $12.3 million, respectively, associated with the notes, including the amortization of commissions and issuance costs.
Deferred Acquisition Costs
In connection to the Chesapeake Acquisition, the Company recognized a debt obligation for deferred payments of $60 million due on each of March 1 of 2024, 2025 and 2026, and $45 million due on March 1, 2027. These payments were recorded at their present value, upon the acquisition close date. The present value of the deferred payments was calculated using an appropriate discount rate, reflecting the time value of money. Subsequent to the initial recognition, the balances are being accreted to their face value using the effective interest method, and an interest expense is recognized in the statement of operations. Any changes in the carrying amount of the debt due to accretion are recognized as interest expense in the period incurred. For the years ended December 31, 2025 and 2024, interest expense incurred on the deferred acquisition costs was $8.0 million and $11.6 million, respectively.
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Maturities of Long-Term Debt
Long-term debt maturities are based on contractual agreements and do not reflect any potential refinancing, prepayments, or amendments that may occur in the future. Borrowings under the Company’s revolving credit facility are presented based on their contractual maturity date, although the Company has the ability to extend or refinance such obligations.
The following table summarizes the scheduled maturities of principal payments on the Company's outstanding Long-Term Debt as of December 31, 2025 (in thousands):
| Year | Amount | |||
| 2026 | $ | 60,000 | ||
| 2027 | 45,000 | |||
| 2028 | - | |||
| 2029 | 670,000 | |||
| Total | $ | 775,000 | ||
8. Leases
The table below provides consolidated balance sheet information related to leases as of December 31, 2025 and 2024 (in thousands):
| December 31, | ||||||||||
| Balance Sheet Location | 2025 | 2024 | ||||||||
| Assets | ||||||||||
| Operating lease right of use - Current | Prepaids and other current assets | $ | 2,114 | $ | 1,701 | |||||
| Operating lease right of use - Non-current | Right of use lease asset | 6,369 | 4,499 | |||||||
| Total right-of-use assets | $ | 8,483 | $ | 6,200 | ||||||
| Liabilities | ||||||||||
| Operating lease liabilities- Current | Other current liabilities | $ | 2,390 | $ | 1,741 | |||||
| Operating lease liabilities - Non-current | Operating lease liability | 8,024 | 5,647 | |||||||
| Total lease liability | $ | 10,414 | $ | 7,388 | ||||||
For the years ended December 31, 2025 and 2024, the Company incurred $1.1 million and $0.9 million, respectively, of operating lease costs, which were included in General and administrative expenses. For the years ended December 31, 2025 and 2024, the Company incurred $0.8 million and $0.5 million, respectively, of operating lease costs, which were included in lease operating expenses. The Company’s short-term leases are primarily composed of drilling rigs and certain field equipment. During the years ended December 31, 2025, the Company’s gross lease costs related to its short-term leases were $25.8 million and $22.1 million, respectively, of which $13.8 million and $11.0 million were capitalized as part of oil and natural gas properties with the remainder charged to lease operating expenses, respectively. A portion of these costs was reimbursed to the Company by other working interest owners. The remaining weighted average lease term for our operating leases is 4.44 years with a weighted average discount rate of 7.51% as of December 31, 2025.
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As of December 31, 2025, minimum annual lease commitments for the remaining calendar years are as follows (in thousands):
| Year | Amount | |||
| 2026 | $ | 3,092 | ||
| 2027 | 2,722 | |||
| 2028 | 2,425 | |||
| 2029 | 2,018 | |||
| 2030 | 1,642 | |||
| Thereafter | 411 | |||
| Total undiscounted lease payments | $ | 12,310 | ||
| Less: imputed interest | (1,896 | ) | ||
| Total lease liabilities | $ | 10,414 | ||
9. Commitments and Contingencies
Legal
From time to time, the Company may be involved in various legal proceedings and claims in the ordinary course of business. In management’s opinion, the outcome of any such currently pending legal action will not have a material adverse effect on our financial positions or results of operations.
Environmental and Governmental Regulation
Many aspects of the oil and natural gas industry are extensively regulated by federal, state, and local governments in the area in which the Company has operations. Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the unitization and pooling of properties, reports concerning operations, royalty rates, and various other matters, including taxation. Oil and natural gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. As of December 31, 2025 and 2024, the Company has not been fined or cited for any violations of governmental regulations that would have a material adverse effect upon its financial condition.
In 2024, the Company recorded an accrual of $2.0 million related to the methane waste emissions charge established under the Inflation Reduction Act and the U.S. Environmental Protection Agency's (“EPA”) implementing rule, which was included in accrued liabilities and other operating expenses. On February 27, 2025, the United States Senate passed a joint resolution disapproving of the EPA’s rule implementing this charge. The resolution was signed into law on March 14, 2025, rendering the rule ineffective. As a result, the Company reversed the $2.0 million accrual during the first quarter of 2025, resulting in a corresponding reduction to other operating expenses for the year ended December 31, 2025. We continue to monitor federal legislative and regulatory developments, including recent budget and appropriations measures, which may further impact future methane-related obligations.
Lease Commitments:
Refer to Note 8 - Leases for details on the Company's operating lease agreements.
10. Income Taxes
The Company has calculated a state income tax expense of $4.0 million and $4.3 million for the years ended December 31, 2025 and 2024, respectively, which included a deferred income tax expense of $3.8 million and $2.7 million, respectively.
The Company had no significant uncertain tax positions and has not recorded any liabilities as of December 31, 2025 and December 31, 2024. As of December 31, 2025 and 2024, the Company made no provision for interest or penalties related to uncertain tax positions.
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There are currently no federal or state income tax examinations under way and tax returns for the periods ended December 31, 2019 through the current year are still open to examination.
11. Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan for the benefit of all employees at the date of hire. The plan allows employees to make contributions of their annual compensation up to the annual limits established by the federal government. The Company makes contributions of 6% of an employee’s compensation up to annual limits established by the federal government and employees are fully vested in the employer contribution upon receipt. The Company contributed $0.7 million and $0.5 million for the years ended December 31, 2025 and 2024, respectively. These amounts were recorded as “General and administrative expenses” on the accompanying consolidated statements of operations.
12. Incentive Units
The Limited Liability Company Agreement (the "Company Agreement") allows for the sharing of gain upon monetization either through a return of capital contributions, plus multiples of capital, through recapitalization, sale or merger or through a return of capital to the unit holders through other means.
The Company Agreement allows for the sharing of gain upon monetization through Series B units (“incentive units”). From time to time, the Board of Directors has and may issue incentive units in consideration of services rendered by employees. The payout is generally dependent upon monetization achieved by the incentive unit holders’, with payments in the form of cash.
The amount of participation by incentive unit holders can vary depending upon the level of monetization achieved by the unit holders. The incentive units are being accounted for as liability-classified awards as achievement of the payout conditions are required for settlement of such awards by transferring cash to the incentive unit holder. Compensation cost is recognized only if the performance condition is probable of being satisfied at each reporting date.
For the years ended December 31, 2025 and 2024, the Board of Directors authorized cash distributions of $156.8 million and $78.4 million, respectively, to unit holders as a return of contributed capital. For the year ended December 31, 2025 the board authorized special advance distributions to incentive unit holders of $3.2 million, which was recorded as compensation expense. No other special distributions to incentive unit holders were declared by the Board of Directors as of December 31, 2025.
13. Related Party Transactions
The Company has not identified any related party transactions during the years ended December 31, 2025 and 2024.
14. Subsequent Events
The Company evaluated subsequent events occurring after December 31, 2025 through April 8, 2026, the date our consolidated financial statements were available for issuance.
In January 2026, the Company restructured its 2028 crude oil derivative contracts by entering into offsetting purchase contracts and simultaneously executing new crude oil sale contracts for the 2026 calendar year. The transaction was designed to monetize the value of the 2028 positions to support 2026 cash flows. The Company is finalizing its evaluation of the accounting treatment and the resulting impact on the 2026 consolidated financial statements and cash flow classifications.
On January 14, 2026, the Company made cash distributions of $49.0 million to unit holders as a return of contributed capital and made special advance distributions of $1.0 million to incentive unit holders. The distributions were authorized by the Board of Directors and recorded as unit holders’ distributions and compensation expense, respectively, in 2026.
On February 27, 2026, the Company made its third deferred payment of $60.0 million in connection with the Chesapeake Acquisition, which was completed on March 20, 2023. The payment was part of the consideration for the acquisition and was accounted for as a liability at its present value on the acquisition date.
23
15. Supplemental Disclosures
Accounts Receivable
The following table summarizes the Company's accounts receivable as of December 31, 2025 and 2024 (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accrued oil and natural gas sales, net | $ | 85,112 | $ | 104,508 | ||||
| Joint interest billing | 1,890 | 2,663 | ||||||
| Receivables from Sand Mine operations | 2,940 | 2,686 | ||||||
| Receivables from midstream operations | 103 | 97 | ||||||
| Accrued derivative contract settlement | 7,002 | 1,568 | ||||||
| Other receivables | 66 | 2,483 | ||||||
| Allowance for credit losses | (362 | ) | (351 | ) | ||||
| Accounts receivable, net | $ | 96,751 | $ | 113,654 | ||||
The following table reflects the Company's beginning and ending balances of its accounts receivables from purchasers of its oil, natural gas and NGLs for the years ended December 31, 2025 and 2024 (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Beginning balance of accounts receivable from purchasers of oil, natural gas and NGLs | 104,508 | 95,718 | ||||||
| Ending balance of accounts receivable from purchasers of oil, natural gas and NGLs | 85,112 | 104,508 | ||||||
The following table summarizes the activity in the balance of allowance for credit losses related to account receivable (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Allowance for credit losses as of the beginning of the year | $ | 351 | $ | 339 | ||||
| Provision for expected losses | 11 | 256 | ||||||
| Write-offs charged against the allowance | - | (244 | ) | |||||
| Allowance for credit losses as of the end of the year | $ | 362 | $ | 351 | ||||
Revenue and Royalties Payable
The following table summarizes the Company's revenues held in suspense and royalties payable as of December 31, 2025 and 2024 (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue held in suspense | $ | 55,488 | $ | 60,610 | ||||
| Revenue and royalties payable | 29,414 | 21,800 | ||||||
| Severance tax payable | 197 | 190 | ||||||
| Total revenue and royalties payable | $ | 85,099 | $ | 82,600 | ||||
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Accrued Expenses
The following table summarizes the Company's current accrued expenses as of December 31, 2025 and 2024 (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accrued capital expenditures | $ | 29,696 | $ | 24,430 | ||||
| Accrued lease operating expenses | 6,217 | 5,957 | ||||||
| Accrued interest | 10,126 | 14,113 | ||||||
| Accrued ad valorem taxes | 31,530 | 32,574 | ||||||
| Accrued general and administrative expense | 407 | 484 | ||||||
| Accrued sand mine operating expenses | 1,474 | 672 | ||||||
| Accrued derivative contract settlement | 676 | 2,256 | ||||||
| Accrued payroll expenses | 2,628 | 1,561 | ||||||
| Other | 1,121 | 2,262 | ||||||
| Total accrued expenses | $ | 83,875 | $ | 84,309 | ||||
Supplemental Cash Flow Information
The following table provides supplemental disclosures of cash flow information for the years ended December 31, 2025 and 2024 (in thousands):
| Years ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash paid for: | ||||||||
| Interest, net of capitalized interest | $ | (63,816 | ) | $ | (60,706 | ) | ||
| Capitalized interest | (3,282 | ) | (1,501 | ) | ||||
| Interest paid | $ | (67,098 | ) | $ | (62,207 | ) | ||
| Income taxes | $ | (1,596 | ) | $ | (1,919 | ) | ||
| Non-cash investing activities: | ||||||||
| Change in accrued capital expenditures | $ | 5,266 | $ | 11,980 | ||||
| Additions to right of use assets | $ | 4,174 | $ | 1,782 | ||||
25
16. Supplemental Information on Oil and Gas Exploration and Production Activities (Unaudited)
The Company operates in one reportable segment engaged in the acquisition, development, exploration, and production of oil and natural gas properties located in the United States.
Costs Incurred Related to Oil and Gas Activities
Capitalized costs represent the costs incurred for properties, equipment, and facilities related to oil and natural gas producing activities. For proved oil and natural gas properties, these include the costs of acquiring oil and natural gas leaseholds with identified proved reserves, development wells, related equipment, and facilities, as well as development wells in progress. For unproved oil and natural gas properties, capitalized costs consist of expenditures for acquiring leaseholds where no proved reserves have yet been identified.
The table below summarizes costs incurred in oil and natural gas producing activities for the years ended December 31, 2025 and 2024 (in thousands):
| Years ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Acquisition cost: | ||||||||
| Proved | $ | 4,290 | $ | 266,468 | ||||
| Unproved | 900 | 862 | ||||||
| Exploration cost: | ||||||||
| Geological and geophysical | 1,500 | 3,321 | ||||||
| Development costs | 315,476 | 245,833 | ||||||
| Total additions | $ | 322,166 | $ | 516,484 | ||||
For the years ended December 31, 2025 and 2024, additions to oil and natural gas properties included $10.6 million and $14.7 million, respectively, for estimated future abandonment costs associated with newly drilled or acquired wells. Additionally, it included $3.3 million and $1.5 million of capitalized interest on debt, respectively, for the same periods.
Capitalized Costs
Capitalized costs, impairment, and depreciation, depletion, and amortization related to the Company’s oil and natural gas producing activities as of December 31, 2025 and 2024 are summarized as follows (in thousands):
| Years ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Oil and gas properties, successful efforts method: | ||||||||
| Proved properties | $ | 4,411,357 | $ | 4,087,462 | ||||
| Unproved properties | 11,033 | 12,818 | ||||||
| Total oil and gas properties, net of accumulated impairments | $ | 4,422,390 | $ | 4,100,280 | ||||
| Accumulated depreciation, depletion and amortization | (1,909,234 | ) | (1,645,083 | ) | ||||
| Net oil and gas properties | $ | 2,513,156 | $ | 2,455,197 | ||||
Oil and Natural Gas Reserves
The process of estimating quantities of proved and proved developed oil and natural gas reserve is a complex process, requiring significant subjective decisions while assessing all available geological and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Therefore, revisions to existing reserve estimates may occur. Although every reasonable effort is made to ensure reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.
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Proved reserves represent estimated quantities of oil, natural gas and NGLs that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from oil and natural gas properties. The proved reserve estimates provided below have been prepared by Netherland, Sewell & Associates, Inc ("NSAI"), an independent petroleum engineering company. In preparing the reserve reports, NSAI evaluated 100% of the Company's properties.
The proved reserves shown herein for the years ended December 31, 2025 and 2024 were estimated in accordance with the guidelines established by the SEC, which require reserves estimates be prepared under existing economic and operating conditions based on the 12-month unweighted arithmetic average of the first-day-of-the-month prices.
The reserve information shown in these Consolidated Financial Statements represents only estimates. There are a number of uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the Company’s control, such as commodity pricing. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. As a result, estimates by different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may lead to revising the original estimate. Accordingly, initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The reliability of such estimates depends primarily on the accuracy of the assumptions upon which they were based. Except to the extent the Company acquires additional properties containing proved reserves or conducts successful exploration and development activities or both, the Company’s proved reserves will decline as reserves are produced.
The following table illustrates the Company’s estimated net proved reserves, including changes, and proved developed and proved undeveloped reserves for the years ended December 31, 2025 and 2024. Oil prices as of December 31, 2025 and 2024 are based on the respective 12-month unweighted average of the first of the month prices of the West Texas Intermediate (“WTI”) spot prices of $66.01 per barrel and $76.32 per barrel, respectively. Natural gas prices as of December 31, 2025 and 2024 are based on the respective 12-month unweighted average of the first of the month prices of the Henry Hub spot price of $3.39 per MMBtu and $2.13 per MMBtu, respectively. NGLs are made up of ethane, propane, isobutane, normal butane and natural gasoline, each of which have different uses and different pricing characteristics. NGLs prices used to value reserves as of December 31, 2025 and 2024 averaged $20.26 per barrel and $19.50 per barrel, respectively. All prices are adjusted by lease or field for energy content, transportation fees, and market differentials, to estimate oil, natural gas and NGLs reserves. As of December 31, 2025, oil, natural gas and NGLs reserves were valued using prices of $65.20 per barrel, $2.72 per MMBtu and $20.26 per barrel, respectively. As of December 31, 2024, oil, natural gas and NGLs reserves were valued using prices of $75.70 per barrel, $1.58 per MMBtu and $19.50 per barrel, respectively. All prices are held constant in accordance with SEC guidelines.
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A summary of the Company's changes in quantities of proved reserves for the years ended December 31, 2025 and 2024 are as follows:
| Oil | Natural Gas | NGLs | Total | |||||||||||||
| (MBbl) | (MMcf) (1) | (MBbl) | (MBoe) | |||||||||||||
| Balance, December 31, 2023 | 182,534 | 121,444 | 24,977 | 227,752 | ||||||||||||
| Purchases of minerals in place | 12,041 | 72,405 | 12,545 | 36,654 | ||||||||||||
| Extensions and discoveries | 14,000 | 6,258 | 1,424 | 16,467 | ||||||||||||
| Revisions of previous estimates | (5,863 | ) | (14,082 | ) | (2,138 | ) | (10,348 | ) | ||||||||
| Production | (11,832 | ) | (11,689 | ) | (2,120 | ) | (15,903 | ) | ||||||||
| Balance, December 31, 2024 | 190,880 | 174,336 | 34,688 | 254,622 | ||||||||||||
| Purchases of minerals in place | 117 | 174 | 35 | 181 | ||||||||||||
| Extensions and discoveries | 31,808 | 52,165 | 9,779 | 50,281 | ||||||||||||
| Revisions of previous estimates | (13,972 | ) | (6,947 | ) | (1,324 | ) | (16,455 | ) | ||||||||
| Production | (12,379 | ) | (14,305 | ) | (2,642 | ) | (17,404 | ) | ||||||||
| Balance, December 31, 2025 | 196,454 | 205,423 | 40,536 | 271,225 | ||||||||||||
| Proved developed reserves: | ||||||||||||||||
| December 31, 2024 | 108,000 | 108,392 | 20,964 | 147,028 | ||||||||||||
| December 31, 2025 | 100,327 | 109,047 | 21,303 | 139,804 | ||||||||||||
| Proved undeveloped reserves: | ||||||||||||||||
| December 31, 2024 | 82,880 | 65,944 | 13,724 | 107,595 | ||||||||||||
| December 31, 2025 | 96,127 | 96,376 | 19,233 | 131,422 | ||||||||||||
1) Barrels of oil equivalents have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equal to one barrel of oil equivalent (Boe).
For the years ended December 31, 2025 and 2024, acquisitions contributed to proved reserves approximately 0.2 MMBoe and 36.7 MMBoe, respectively. For the year ended December 31, 2025, the acquired reserves were related to eight bolt-on acquisitions of oil and natural gas properties. For the year ended December 31, 2024, the acquired reserves were primarily related to oil and natural gas properties acquired from Apache Corporation in the Eagle Ford Basin in East Texas.
For the years ended December 31, 2025 and 2024, extensions contributed to proved reserves approximately 50.3 MMBoe and 16.5 MMBoe, respectively. These were primarily related to the development of new well locations.
For the years ended December 31, 2025 and 2024, the Company had negative revisions to proved reserves of approximately 16.5 MMBoe and 10.3 MMBoe, respectively. For the year ended December 31, 2025, the negative revisions were comprised of 6.1 MMBoe due to the impact of lower year-end 2025 SEC prices and 10.3 MMBoe due to performance and other economic factors. For the year ended December 31, 2024, the negative revisions were comprised of 1.40 MMBoe due to impact of lower year-end 2024 SEC prices and 9.00 MMBoe due to performance and other economic factors.
For wells classified as proved developed producing where sufficient production history existed, reserves were based on individual well performance evaluation and production decline curve extrapolation techniques. For undeveloped locations and wells that lack sufficient production history, reserves were based on analogy to producing wells within the same area exhibiting similar geologic and reservoir characteristics.
28
A summary of the Company's changes in quantities of proved undeveloped reserves for the years ended December 31, 2025 and 2024 are as follows:
| Oil | Natural Gas | NGLs | Total | |||||||||||||
| (MBbl) | (MMcf) (1) | (MBbl) | (MBoe) | |||||||||||||
| Balance, December 31, 2023 | 78,823 | 47,666 | 11,540 | 98,307 | ||||||||||||
| Purchases of minerals in place | 4,078 | 26,722 | 4,596 | 13,128 | ||||||||||||
| Extensions and discoveries | 13,896 | 6,227 | 1,419 | 16,353 | ||||||||||||
| Revisions of previous estimates | (8,143 | ) | (12,506 | ) | (3,335 | ) | (13,562 | ) | ||||||||
| Transfers to proved developed | (5,774 | ) | (2,165 | ) | (496 | ) | (6,631 | ) | ||||||||
| Balance, December 31, 2024 | 82,880 | 65,944 | 13,724 | 107,595 | ||||||||||||
| Extensions and discoveries | 31,808 | 52,165 | 9,779 | 50,281 | ||||||||||||
| Revisions of previous estimates | (12,851 | ) | (10,504 | ) | (2,179 | ) | (16,781 | ) | ||||||||
| Transfers to proved developed | (5,710 | ) | (11,229 | ) | (2,091 | ) | (9,673 | ) | ||||||||
| Balance, December 31, 2025 | 96,127 | 96,376 | 19,233 | 131,422 | ||||||||||||
1) Barrels of oil equivalents have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equal to one barrel of oil equivalent (Boe).
Standardized Measure of Discounted Future Net Cash Flows
The following Standardized Measure of Discounted Future Net Cash Flows ("Standardized Measure") has been developed utilizing FASB ASC Topic 932, Extractive Activities - Oil and Gas ("ASC 932") procedures and is based on oil and natural gas reserves and production volumes estimated by the Company's third-party petroleum engineering company. The Standardized Measure is not intended to present fair market value of the Company's oil and natural gas reserves, or to be used to assess its performance. The following table may not represent realistic assessment as it does not consider, among other things, the recovery of reserves in excess of proved reserves, future changes in prices and costs, an allowance for return on investment, and the risks inherent in reserves estimates.
As of December 31, 2025 and 2024, the prices used in the calculation of the Standardized Measure were the 12-month unweighted arithmetic average for the first day of the month prices, as specified by the SEC. Prices used in the reserve estimates are provided in the Oil and Natural Gas Reserves supplemental disclosure above. Estimates of future income taxes are computed using current statutory income tax rates. The resulting net cash flows are discounted to present value by applying a 10% discount rate.
The Standardized Measure as of December 31, 2025 and 2024 is as follows (in thousands):
| As December 31, | ||||||||
| 2025 | 2024 | |||||||
| Future cash inflows | $ | 14,187,714 | $ | 15,402,463 | ||||
| Future production costs | (4,244,624 | ) | (4,183,171 | ) | ||||
| Future development costs | (2,040,812 | ) | (2,005,865 | ) | ||||
| Future income tax expense | (74,486 | ) | (80,863 | ) | ||||
| Future net cash flows | 7,827,792 | 9,132,564 | ||||||
| 10% annual discount for estimated timing of cash flows | (3,759,423 | ) | (4,512,847 | ) | ||||
| Standardized Measure of discounted future net cash flows | $ | 4,068,369 | $ | 4,619,717 | ||||
29
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves
The following table is a summary of the changes in the Standardized Measure for the Company's oil and natural gas reserves for the years ended December 31, 2025 and 2024 (in thousands):
| As December 31, | ||||||||
| 2025 | 2024 | |||||||
| Beginning of the year | $ | 4,619,717 | $ | 4,270,020 | ||||
| Revision to reserves proved in prior years: | ||||||||
| Net changes in prices, net of production costs | (959,978 | ) | (167,903 | ) | ||||
| Net changes in future development costs | 473,677 | 663,860 | ||||||
| Net changes due to revisions in quantity estimates | (324,325 | ) | (107,751 | ) | ||||
| Accretion of discount | 466,101 | 430,884 | ||||||
| Changing in timing and other | 75,313 | 161,957 | ||||||
| Total revisions | (269,212 | ) | 981,047 | |||||
| Purchases of minerals in place | 8,478 | 553,380 | ||||||
| Extensions | 568,645 | 284,027 | ||||||
| Sales of oil and gas produced, net of production costs | (675,158 | ) | (749,811 | ) | ||||
| Changes to previously estimated development costs incurred | (186,202 | ) | (716,478 | ) | ||||
| Net change in income taxes | 2,101 | (2,468 | ) | |||||
| Net change in Standardized Measure of discounted future net cash flows | (551,348 | ) | 349,697 | |||||
| Ending balance | $ | 4,068,369 | $ | 4,619,717 | ||||
30
Exhibit 99.3
WildFire Energy I LLC
Condensed Consolidated Interim Financial Statements
For the quarterly period ended March 31, 2026 and 2025
(Unaudited)
Unaudited Condensed Consolidated Interim Financial Statements:
| Condensed Consolidated Interim Balance Sheets | 3 |
| Condensed Consolidated Interim Statements of Operations | 4 |
| Condensed Consolidated Interim Statements of Unit Holders’ Equity | 5 |
| Condensed Consolidated Interim Statements of Cash Flows | 6 |
| Notes to Condensed Consolidated Interim Financial Statements: | 7 |
| 1. Organization and Significant Accounting Policies | 7 |
| 2. Revenue Recognition | 8 |
| 3. Acquisitions and Divestitures | 8 |
| 4. Oil and Natural Gas Properties | 8 |
| 5. Long–Term Debt | 8 |
| 6. Asset Retirement Obligations | 9 |
| 7. Fair Value Measurements | 10 |
| 8. Derivative Financial Instruments | 12 |
| 9. Commitments and Contingencies | 13 |
| 10. Income Taxes | 13 |
| 11. Defined Contribution Plan | 14 |
| 12. Incentive Units | 14 |
| 13. Related Party Transactions | 14 |
| 14. Supplemental Disclosures | 14 |
| 15. Subsequent Events | 16 |
WildFire Energy I LLC
Condensed Consolidated Interim Balance Sheets
(Unaudited, in thousands)
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 13,192 | $ | 2,364 | ||||
| Accounts receivable, net | 163,430 | 96,751 | ||||||
| Inventory | 6,228 | 8,019 | ||||||
| Short-term derivative instruments | 4,624 | 65,083 | ||||||
| Debt issuance cost | 7,219 | 7,212 | ||||||
| Prepaids and other current assets | 6,038 | 6,194 | ||||||
| Total current assets | 200,731 | 185,623 | ||||||
| Oil and natural gas properties, successful efforts method: | ||||||||
| Proved oil and natural gas properties | 4,471,156 | 4,411,357 | ||||||
| Unproved oil and natural gas properties | 11,030 | 11,033 | ||||||
| Other property and equipment | 92,952 | 91,004 | ||||||
| Accumulated depreciation, depletion and impairment | (2,025,697 | ) | (1,957,022 | ) | ||||
| Total property and equipment, net | 2,549,441 | 2,556,372 | ||||||
| Other non-current assets | ||||||||
| Debt issuance costs | 14,221 | 15,984 | ||||||
| Long-term derivative instruments | 1,485 | 48,339 | ||||||
| Right of use lease asset | 5,812 | 6,369 | ||||||
| Other non-current assets | 152 | 152 | ||||||
| TOTAL ASSETS | $ | 2,771,842 | $ | 2,812,839 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 18,650 | $ | 15,158 | ||||
| Revenues and royalties payable | 102,627 | 85,099 | ||||||
| Accrued liabilities | 82,140 | 83,875 | ||||||
| Short-term derivative instruments | 134,568 | — | ||||||
| Asset retirement obligations | 4,462 | 4,462 | ||||||
| Income tax payable | 954 | 207 | ||||||
| Current portion of long-term debt | 41,941 | 59,042 | ||||||
| Other current liabilities | 2,460 | 2,390 | ||||||
| Total current liabilities | 387,802 | 250,233 | ||||||
| Non-current liabilities: | ||||||||
| Long-term debt, net | 708,162 | 700,755 | ||||||
| Long-term derivative instruments | 11,135 | 1,197 | ||||||
| Asset retirement obligations | 124,715 | 122,185 | ||||||
| Deferred income tax | 5,972 | 7,874 | ||||||
| Operating lease liability | 7,452 | 8,024 | ||||||
| Total non-current liabilities | 857,436 | 840,035 | ||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Unit holders' equity | ||||||||
| Unit holder contributions | 751,574 | 751,574 | ||||||
| Retained earnings | 775,030 | 970,997 | ||||||
| Total unit holders’ equity | 1,526,604 | 1,722,571 | ||||||
| TOTAL LIABILITIES AND UNIT HOLDERS' EQUITY | $ | 2,771,842 | $ | 2,812,839 | ||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
WildFire Energy I LLC
Condensed Consolidated Interim Statements of Operations
(Unaudited, in thousands)
| Three months ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| REVENUES | ||||||||
| Oil | $ | 249,068 | $ | 216,131 | ||||
| Natural gas | 6,893 | 8,780 | ||||||
| NGLs | 9,031 | 10,838 | ||||||
| Other operating revenues | 11,859 | 8,677 | ||||||
| Total operating revenues | 276,851 | 244,426 | ||||||
| OPERATING COSTS AND EXPENSES | ||||||||
| Lease operating expenses | 28,823 | 30,548 | ||||||
| Gathering, processing and transportation expense | 108 | 114 | ||||||
| Taxes other than income | 19,859 | 19,343 | ||||||
| Other operating expenses | 6,477 | 2,843 | ||||||
| Depreciation, depletion, amortization and accretion | 71,020 | 63,038 | ||||||
| Exploration expenses | 3 | 433 | ||||||
| General and administrative expenses | 7,551 | 6,415 | ||||||
| Total operating costs and expenses | 133,841 | 122,734 | ||||||
| Income from operations | 143,010 | 121,692 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Gain (loss) on derivative instruments | (273,036 | ) | 126 | |||||
| Interest expense | (18,190 | ) | (22,198 | ) | ||||
| Other income | 94 | 280 | ||||||
| Total other expense | (291,132 | ) | (21,792 | ) | ||||
| Income (loss) before income taxes | (148,122 | ) | 99,900 | |||||
| Income tax (expense) benefit | 1,155 | (881 | ) | |||||
| Net income (loss) | $ | (146,967 | ) | $ | 99,019 | |||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
WildFire Energy I LLC
Condensed Consolidated Interim Statements of Unit Holders' Equity
(Unaudited, in thousands)
| Unit holders’ contributions | Retained earnings | Total unit holders' equity | ||||||||||
| Balance, December 31, 2025 | 751,574 | 970,997 | 1,722,571 | |||||||||
| Unit holders' contributions | — | — | — | |||||||||
| Unit holders' distributions | — | (49,000 | ) | (49,000 | ) | |||||||
| Net Loss | — | (146,967 | ) | (146,967 | ) | |||||||
| Balance, March 31, 2026 | $ | 751,574 | $ | 775,030 | $ | 1,526,604 | ||||||
| Unit holders’ contributions | Retained earnings | Total unit holders' equity | ||||||||||
| Balance, December 31, 2024 | $ | 751,574 | $ | 665,395 | $ | 1,416,969 | ||||||
| Unit holders' contributions | — | — | — | |||||||||
| Unit holders' distributions | — | (39,200 | ) | (39,200 | ) | |||||||
| Net income | — | 99,019 | 99,019 | |||||||||
| Balance, March 31, 2025 | 751,574 | 725,214 | 1,476,788 | |||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
5
WildFire Energy I LLC
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited, in thousands)
| Three months ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (146,967 | ) | $ | 99,019 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation, depletion, amortization and accretion | 71,020 | 63,038 | ||||||
| Write-off expired oil and natural gas leases | 3 | 623 | ||||||
| (Gain) loss on derivative instruments | 273,036 | (126 | ) | |||||
| Net cash (paid) received in settlement of commodity derivatives contracts | 10,882 | (9,784 | ) | |||||
| Settlements paid for asset retirement obligations | (716 | ) | (811 | ) | ||||
| Lease amortization | 11 | 144 | ||||||
| Amortization of debt issuance costs | 2,439 | 3,623 | ||||||
| Amortization of deferred acquisition payment | 1,710 | 2,662 | ||||||
| Deferred income tax | (1,902 | ) | 443 | |||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts receivable | (72,796 | ) | (4,026 | ) | ||||
| Decrease in prepaid expenses | 137 | 877 | ||||||
| Decrease in inventory | 1,792 | 927 | ||||||
| Increase in accounts payable | 23,240 | 3,829 | ||||||
| Decrease in accrued liabilities | (14,502 | ) | (16,385 | ) | ||||
| Net cash provided by operating activities | 147,387 | 144,053 | ||||||
| Cash flows from investing activities: | ||||||||
| Leasehold acquisition | — | (112 | ) | |||||
| Proved property acquisition | (474 | ) | (14,746 | ) | ||||
| Drilling and development capital expenditures | (73,112 | ) | (66,034 | ) | ||||
| Other property and equipment expenditures | (1,948 | ) | (208 | ) | ||||
| Net cash used in investing activities | (75,534 | ) | (81,100 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Advances on revolving credit facility | 221,000 | 224,000 | ||||||
| Payments on revolving credit facility | (173,000 | ) | (193,000 | ) | ||||
| Payment of deferred acquisition costs | (60,000 | ) | (60,000 | ) | ||||
| Cash paid for deferred financing costs | (25 | ) | (59 | ) | ||||
| Unit holders’ distributions | (49,000 | ) | (39,200 | ) | ||||
| Net cash used in financing activities | (61,025 | ) | (68,259 | ) | ||||
| Net increase (decrease) in cash | 10,828 | (5,306 | ) | |||||
| Cash at beginning of period | 2,364 | 12,009 | ||||||
| Cash at end of period | $ | 13,192 | $ | 6,703 | ||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
6
WildFire Energy I LLC
Notes to the Condensed Consolidated Interim Financial Statements
(Unaudited)
1. Organization and Significant Accounting Policies
Organization
WildFire Energy I LLC, a Delaware limited liability company (“WildFire” and together with its consolidated subsidiaries, the “Company”) is an independent energy company focused on the acquisition, exploration and production of oil and natural gas properties in the United States, primarily targeting the Eagle Ford, Woodbine and Austin Chalk formation in East Texas, through the application of modern technology and production optimization. The Company's operations are primarily in the upstream segment of the oil and natural gas industry.
As a holding company, WildFire has no operations and conducts all of its business through its consolidated direct wholly owned subsidiary, WildFire Intermediate Holdings LLC, and its consolidated indirect wholly owned subsidiary WildFire Energy Operating LLC.
Basis of Presentation
The unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. Accordingly, certain disclosures normally included in our annual audited financial statements have been omitted. The condensed consolidated interim financial statements and related notes included in this report should be read in conjunction with the consolidated financial statements and related notes included in the Company's audited consolidated financial statements as of and for the year ended December 31, 2025. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the audited consolidated financial statements as of and for the year ended December 31, 2025.
The condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. WildFire's sole material assets consist of ownership interests in its consolidated wholly owned subsidiary, WildFire Intermediate Holdings LLC, and there is no material difference of the operations, cash flows, material assets or liabilities between WildFire and WildFire Intermediate Holdings, LLC.
The accompanying unaudited condensed consolidated interim financial statements, in management's opinion, reflect all necessary adjustments for the fair presentation of its financial positions, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The consolidated balance sheet as of December 31, 2025, was derived from the audited consolidated financial statements.
Recent Accounting Pronouncements
In March 2024, the FASB issued ASU 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which provides illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of ASC 718, Compensation-Stock Compensation. The Company adopted this standard on January 1, 2026. The adoption of this guidance did not have a material impact on the Company’s financial statements or disclosures, as the Company’s existing accounting for incentive units is consistent with the clarified scope.
In November 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which centralizes and clarifies interim disclosure requirements under GAAP. The Update provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to report events occurring since the most recent annual period that have a material impact on the entity, regardless of whether such disclosures are specifically listed in Topic 270. Additionally, the amendments clarify the form and content of interim financial statements to ensure reporting consistency. For the Company, the amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2028, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its financial statement disclosures.
7
2. Revenue Recognition
The Company's revenues are comprised of revenue from customers and include the sale of oil, natural gas, NGLs and other operating revenues. The Company believes that the disaggregation of revenue into these four major categories, as presented in the condensed consolidated interim statements of operations, appropriately depicts the nature of each revenue stream. The Company's “Accounts receivable, net” balance consist mainly of trade receivables from oil and natural gas sales, joint interest billing due from owners, trade receivables from sand mine operations and other receivables. Trade receivables from oil and natural gas sales totaled $149.7 million as of March 31, 2026 and $85.1 million as of December 31, 2025. For further detail regarding the Company's revenue recognition policies, refer to Note 1 - Organization and Summary of Significant Accounting Policies included in the Company's audited consolidated financial statements as of and for the year ended December 31, 2025.
3. Acquisitions and Divestitures
2025 Bolt-on Asset Acquisitions
During 2025, WildFire completed five bolt-on acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of approximately $4.1 million. These transactions were recorded as asset acquisitions in accordance with ASC Topic 805, Business Combinations.
4. Oil and Natural Gas Properties
For the three months ended March 31, 2026 and 2025, depletion expense for oil and gas producing property and related equipment were $67.9 million and $60.3 million, respectively.
5. Long–Term Debt
Long term debt consisted of the following as of March 31, 2026 and December 31, 2025 (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Current portion of deferred acquisition costs | $ | 41,941 | $ | 59,042 | ||||
| Current portion of long-term debt | $ | 41,941 | $ | 59,042 | ||||
| Revolving credit facility | $ | 118,000 | $ | 70,000 | ||||
| 7.50% Senior Notes due 2029, net, 8.03% effective rate | 590,162 | 589,567 | ||||||
| Deferred acquisition costs, 7.26% effective rate | — | 41,188 | ||||||
| Long-term debt | $ | 708,162 | $ | 700,755 | ||||
| Total debt | $ | 750,103 | $ | 759,797 | ||||
Total interest expense incurred for the three months ended March 31, 2026 and 2025 were $18.2 million and $22.2 million, respectively, net of capitalized interest of $0.4 million and $0.5 million, respectively.
Wildfire Revolving Credit Facility
The Company has a credit agreement with a syndicate of banks that provides for a secured revolving credit facility, maturing on March 19, 2029 (the "Credit Agreement"). As of March 31, 2026, the Credit Agreement had a borrowing base and an elected commitment of $1.5 billion. As of March 31, 2026, the Company had $118.0 million drawn and $1.4 billion in available borrowing capacity under the revolving credit facility.
The Credit Agreement contains restrictive covenants and requires the Company to maintain compliance with certain financial ratios. The Company was in compliance with the Credit Agreement's covenants and the applicable financial ratios as of March 31, 2026 and December 31, 2025. Refer to Note 7 - Long-Term Debt included in the Company's audited consolidated financial statements as of and for the year ended December 31, 2025 for more details on the Company's Credit Agreement.
For the three months ended March 31, 2026 and 2025, interest expense and commitment fees incurred on the revolving credit facility were $5.0 million and $8.2 million. These amounts include $1.8 million and $3.0 million of amortization of deferred financing costs, respectively.
8
For the three months ended March 31, 2026 and 2025, the weighted average interest rate on borrowings under the revolving credit facility averaged 5.93% and 6.94% per annum, respectively, which excluded commitment fees and amortization of deferred financing costs.
7.5% Unsecured Senior Notes due 2029
On September 26, 2024, WildFire issued $600 million aggregate principal amount of unsecured 7.5% senior notes, maturing on October 15, 2029 (the "Notes") for net proceeds of $588.0 million, after deducting commissions and transaction costs (the "Notes Offering").
In connection with the completion of the Notes Offering, WildFire, entered into an indenture, dated as of September 26, 2024 (the "Indenture"), among WildFire, its subsidiaries ("Guarantors"), and U.S. Bank Trust Company, National Association, as Trustee.
In connection with the offering, the Company incurred commissions and transaction costs of approximately $13.3 million. These costs are capitalized and amortized using the effective interest rate method over the term of the Notes and are included in the condensed consolidated interim statement of operations. The unamortized portion of these deferred financing costs is included as a reduction to the carrying value of the Notes. Refer to Note 7 - Long-Term Debt included in the Company's audited consolidated financial statements as of and for the year ended December 31, 2025 for more details on the Company's unsecured senior notes.
For the three months ended March 31, 2026 and 2025, the company recorded total interest expense of $11.8 million and $11.8 million, respectively, associated with the notes, including the amortization of commissions and issuance costs.
Deferred Acquisition Costs
In connection to the Chesapeake Acquisition, the Company recognized a debt obligation for deferred payments of $60 million due on each of March 1 of 2024, 2025 and 2026, and $45 million due on March 1, 2027. These payments were recorded at their present value, upon the acquisition close date. The present value of the deferred payments was calculated using an appropriate discount rate, reflecting the time value of money. Subsequent to the initial recognition, the balances are being accreted to their face value using the effective interest method, and an interest expense is recognized in the statement of operations. Any changes in the carrying amount of the debt due to accretion are recognized as interest expense in the period incurred. For the three months ended March 31, 2026 and 2025, interest expense incurred on the deferred acquisition costs were $1.7 million and $2.7 million, respectively.
6. Asset Retirement Obligations
The Company’s asset retirement obligations represent the present value of estimated future costs associated with the plugging and abandonment of oil and natural gas wells, removal of equipment and facilities from leased acreage, and land restoration in accordance with applicable local, state and federal laws. The Company determines its asset retirement obligation amounts by calculating the present value of the estimated future cash outflows associated with its plug and abandonment obligations. The associated asset retirement costs are capitalized as part of the carrying amount of proved properties. Subsequent to initial measurement, asset retirement obligations are required to be accreted each period. The following table provides a reconciliation of the Company’s asset retirement obligations (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Asset retirement obligation, January 1 | $ | 126,647 | $ | 109,388 | ||||
| Liabilities incurred for new wells and facilities construction | 901 | 9,565 | ||||||
| Liabilities incurred for acquired wells | — | 2,358 | ||||||
| Reduction due to plugged and abandoned wells | (716 | ) | (1,635 | ) | ||||
| Reduction due to sold wells | — | (62 | ) | |||||
| Revision of estimates | — | (1,298 | ) | |||||
| Accretion | 2,345 | 8,331 | ||||||
| Asset retirement obligation, end of period | $ | 129,177 | $ | 126,647 | ||||
9
7. Fair Value Measurements
The Company categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
Level 1 – Unadjusted, quoted Prices in active markets for Identical assets or liabilities at the measurement date.
Level 2 – Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.
Level 3 – Valuations that require inputs that are both unobservable and significant to the fair value measurement. Valuation under Level 3 generally involves a significant degree of judgment from management.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels during the three months ended March 31, 2026.
Fair Value on a Recurring Basis
Derivative Financial Instruments
Derivative financial instruments are carried at fair value and measured on a recurring basis. The derivative financial instruments consist primarily of fixed price and basis swap agreements with a limited amount of Henry Hub gas collars. The Company’s commodity price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves. These inputs are designated as Level 2 within the valuation hierarchy.
The fair values of derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments in liability positions include measures of the Company’s nonperformance risk. These measurements were not material to the condensed consolidated interim financial statements. The following table summarizes the fair value of the Company’s financial assets and liabilities, by level within the fair value hierarchy (in thousands):
| March 31, 2026 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Financial assets | ||||||||||||||||
| Derivative asset - current | $ | — | $ | 4,624 | $ | — | $ | 4,624 | ||||||||
| Derivative asset - non-current | — | 1,485 | — | 1,485 | ||||||||||||
| Total financial assets | — | 6,109 | — | 6,109 | ||||||||||||
| Financial liabilities | ||||||||||||||||
| Derivative liability - current | — | 134,568 | — | 134,568 | ||||||||||||
| Derivative liability - non-current | — | 11,135 | — | 11,135 | ||||||||||||
| Total financial liabilities | $ | — | $ | 145,703 | $ | — | $ | 145,703 | ||||||||
| December 31, 2025 | ||||||||||||||||
| Financial assets | ||||||||||||||||
| Derivative asset - current | $ | — | $ | 65,083 | $ | — | $ | 65,083 | ||||||||
| Derivative asset - non-current | — | 48,339 | — | 48,339 | ||||||||||||
| Total financial assets | — | 113,422 | — | 113,422 | ||||||||||||
| Financial liabilities | ||||||||||||||||
| Derivative liability - current | — | — | — | — | ||||||||||||
| Derivative liability - non-current | — | 1,197 | — | 1,197 | ||||||||||||
| Total financial liabilities | $ | — | $ | 1,197 | $ | — | $ | 1,197 | ||||||||
10
Commodity derivative instrument models consider various assumptions, including quoted forward prices for commodities, time value and volatility. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are therefore designated as Level 2 within the valuation hierarchy. The discount rates used in the fair values of these instruments include a measure of either the Company’s or the counterparty’s nonperformance risk, as appropriate. The Company utilizes its counterparty’s valuations to assess the reasonableness of its own valuations.
Fair Value on a Nonrecurring Basis
The Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities, including oil and natural gas properties, business combination and asset retirement obligations. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value estimation when acquisitions occur or asset retirement obligations are recorded. These are considered Level 3 valuations. See further discussion in Note 3, "Acquisitions and Divestitures".
Asset retirement obligations are recorded at fair value in the period in which the liability is incurred. Fair value is determined by calculating the present value of estimated future cash flows related to the liability. To estimate the future asset retirement obligation, management must make judgments and estimates regarding the timing and existence of a liability and what constitutes sufficient restoration under the current regulatory requirements. Fair value calculations inherently involve numerous assumptions and judgments such as the ultimate costs, inflation factors, credit-adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments.
Items Not Recorded at Fair Value
The carrying amounts reported on the condensed consolidated interim balance sheets for cash, accounts receivable, prepaid expenses, other current assets, accounts payable, revenues and royalties payable, accrued expenses and other current liabilities approximate their fair values.
The Company has not elected to account for its debt instruments at fair value. Borrowing under the revolving credit facility bear interest at floating market rates, therefore the carrying amount and fair value were approximately equal as of March 31, 2026 and December 31, 2025. The 7.5% Unsecured Senior Notes due 2029 had a carrying value of $590.2 million, net of $9.8 million in deferred financing costs, and an estimated fair value of $608.0 million as of March 31, 2026.
11
8. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations and uses derivative instruments to manage its commodity price risk.
Commodity Derivative Instruments
The Company may periodically use derivative instruments, such as fixed price swaps, basis swaps, costless collars, and other similar agreements to achieve a more predictable cash flow by reducing its exposure to commodity price volatility. Commodity derivative contracts are thereby used to ensure adequate cash flow to fund the Company’s capital programs and to manage returns on acquisitions and drilling programs. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company does not enter into derivative contracts for speculative or trading purposes. A description of the Company's derivative financial instruments is provided below:
Fixed price swaps. Derivative instruments designed to establish a fixed price for anticipated future oil and natural gas production.
Basis swaps. Derivative instruments designed to guarantee a price differential for natural gas from a specified delivery point.
Costless collars. Derivative instruments designed to limit the range of natural gas price fluctuations by establishing a floor and a ceiling price, allowing the Company to benefit from favorable market movements while protecting against adverse price declines.
In January 2026, the Company restructured certain of its 2028 crude oil derivative contracts by entering into offsetting purchase contracts and simultaneously executing new crude oil swap contracts for the 2026 calendar year. This transaction was designed to monetize the fair value of the 2028 positions to support 2026 cash flows. The restructuring was completed on a cashless basis and did not result in an other-than-insignificant financing element at inception under ASC 815. Accordingly, the restructured contracts continue to be recognized at fair value on the condensed consolidated interim balance sheets, with changes in fair value recognized in earnings and all associated cash settlements classified within operating activities in the condensed consolidated interim statements of cash flows.
The derivative instruments below are not formally designated for hedge accounting treatment. The Company had the following open crude oil and natural gas derivative contracts as of March 31, 2026:
| 2026 | 2027 | 2028 | 2029 | |||||||||||||
| Crude Oil Derivative Contracts: | ||||||||||||||||
| Fixed price swap contracts | ||||||||||||||||
| Volume (Bbl) | 7,420,428 | 5,810,016 | — | — | ||||||||||||
| Weighted-average fixed price | $ | 64.50 | $ | 65.02 | $ | — | $ | — | ||||||||
| Natural Gas Derivative Contracts: | ||||||||||||||||
| Fixed price swap contracts | ||||||||||||||||
| Volume (MMBtu) | 6,890,444 | 8,399,138 | 4,006,761 | 1,719,975 | ||||||||||||
| Weighted-average fixed price | $ | 4.04 | $ | 3.81 | $ | 3.67 | $ | 3.77 | ||||||||
| Basis swap | ||||||||||||||||
| Volume (MMBtu) | 7,136,665 | 8,445,454 | 3,298,473 | — | ||||||||||||
| Weighted-average fixed price | $ | (0.37 | ) | $ | (0.35 | ) | $ | (0.27 | ) | $ | — | |||||
| Costless Collars | ||||||||||||||||
| Volume (MMBtu) | 158,926 | 46,317 | — | — | ||||||||||||
| Bought Floor | $ | 2.90 | $ | 2.90 | $ | — | $ | — | ||||||||
| Sold Ceiling | $ | 4.85 | $ | 4.85 | $ | — | $ | — | ||||||||
12
Balance Sheet Presentation
The Company’s commodity derivatives are measured at fair value and are included in the accompanying condensed consolidated interim balance sheets as a derivative asset or liability. The Company had a net derivative liability of $139.6 million as of March 31, 2026, and a net derivative asset of $112.2 million as of December 31, 2025. The following table summarizes both: (i) the gross fair value of derivative instruments by the appropriate balance sheet classification when the derivative instruments are subject to netting arrangements and qualify for net presentation in the balance sheet and (ii) the net recorded fair value as reflected on the balance sheet as of March 31, 2026 and December 31, 2025 (in thousands). There was no cash collateral received or pledged associated with our derivative instruments since the counterparties to our derivative contracts are lenders under our collective credit agreements.
| Asset Derivatives | Liability Derivatives | |||||||||||||||||
| Type | Balance Sheet Location | 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Commodity contracts | Short-term derivative instruments | $ | 5,898 | $ | 65,586 | $ | 135,842 | $ | 503 | |||||||||
| Netting arrangements | Short-term derivative instruments | (1,274 | ) | (503 | ) | (1,274 | ) | (503 | ) | |||||||||
| Net recorded fair value | $ | 4,624 | $ | 65,083 | $ | 134,568 | $ | — | ||||||||||
| Commodity contracts | Long-term derivative instruments | $ | 5,433 | $ | 49,878 | $ | 15,083 | $ | 2,736 | |||||||||
| Netting arrangements | Long-term derivative instruments | (3,948 | ) | (1,539 | ) | (3,948 | ) | (1,539 | ) | |||||||||
| Net recorded fair value | $ | 1,485 | $ | 48,339 | $ | 11,135 | $ | 1,197 | ||||||||||
None of the Company’s derivative instruments contain credit-risk-related contingent features. The counterparties to the Company’s derivative contracts are high credit-quality financial institutions that are lenders under the Company’s credit agreement. The Company uses only credit agreement participants to hedge with, since these institutions are secured equally with the holders of the Company’s bank debt, which eliminates the potential need to post collateral when the Company is in a derivative liability position.
Gain & (Loss) on Derivatives
All gains and losses, including changes in the derivative instruments’ fair values, are included as a component of “Other income (expense)” in the condensed consolidated interim statements of operations. The following table details the gains and losses related to derivative instruments for the three months ended March 31, 2026 and 2025 (in thousands):
| Three months ended | ||||||||||
| March 31, | ||||||||||
| Statement of Operations Location | 2026 | 2025 | ||||||||
| Realized cash settlement gains (losses) | Gain (loss) on derivative instruments | $ | (21,217 | ) | $ | (9,738 | ) | |||
| Unrealized mark-to-market derivative gains | Gain (loss) on derivative instruments | $ | (251,819 | ) | $ | 9,864 | ||||
9. Commitments and Contingencies
Legal
From time to time, the Company may be involved in various legal proceedings and claims in the ordinary course of business. In management’s opinion, the outcome of any such currently pending legal action will not have a material adverse effect on our financial positions or results of operations.
Environmental and Governmental Regulation
Many aspects of the oil and natural gas industry are extensively regulated by federal, state, and local governments in the area in which the Company has operations. Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the unitization and pooling of properties, reports concerning operations, royalty rates, and various other matters, including taxation. Oil and natural gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. As of March 31, 2026 and December 31, 2025, the Company has not been fined or cited for any violations of governmental regulations that would have a material adverse effect upon its financial condition.
10. Income Taxes
The Company has calculated a state income tax benefit of $1.2 million and expense of $0.9 million for the three months ended March 31, 2026 and 2025, respectively, which included a deferred income tax benefit of $1.9 million and expense of $0.4 million, respectively.
13
The Company had no significant uncertain tax positions and has not recorded any liabilities as of March 31, 2026. As of March 31, 2026, the Company made no provision for interest or penalties related to uncertain tax positions.
There are currently no federal or state income tax examinations under way and tax returns for the periods ended December 31, 2019 through the current year are still open to examination.
11. Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan for the benefit of all employees at the date of hire. The plan allows employees to make contributions of their annual compensation up to the annual limits established by the federal government. The Company makes contributions of 6% of an employee’s compensation up to annual limits established by the federal government and employees are fully vested in the employer contribution upon receipt. The Company contributed $0.2 million and $0.1 million for the three months ended March 31, 2026 and 2025, respectively. These amounts were recorded as “General and administrative, net” on the accompanying condensed consolidated interim statements of operations.
12. Incentive Units
The Limited Liability Company Agreement (the "Company Agreement") allows for the sharing of gain upon monetization either through a return of capital contributions, plus multiples of capital, through recapitalization, sale or merger or through a return of capital to the unit holders through other means.
The Company's Agreement allows for the sharing of gain upon monetization through Series B units (“incentive units”). From time to time, the Board of Directors has and may issue incentive units in consideration of services rendered by employees. The payout is generally dependent upon monetization achieved by the incentive unit holders’, with payments in the form of cash.
The amount of participation by incentive unit holders can vary depending upon the level of monetization achieved by the unit holders. The incentive units are being accounted for as liability-classified awards as achievement of the payout conditions are required for settlement of such awards by transferring cash to the incentive unit holder. Compensation cost is recognized only if the performance condition is probable of being satisfied at each reporting date.
For the three months ended March 31, 2026 and 2025, the Board of Directors authorized cash distributions to unit holders, as a return of contributed capital, of $49.0 million and $39.2 million, respectively. In connection with these distributions, the Board of Directors authorized special advance distributions to incentive unit holders of $1.0 million and $0.8 million for the three months ended March 31, 2026 and 2025, respectively, which were recorded as compensation expense.
13. Related Party Transactions
The Company has not identified any related party transactions during the three months ended March 31, 2026 and 2025.
14. Supplemental Disclosures
Accounts Receivable
The following table summarizes the Company's accounts receivable as of March 31, 2026 and December 31, 2025 (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Accrued oil and natural gas sales, net | $ | 149,692 | $ | 85,112 | ||||
| Joint interest billing | 2,379 | 1,890 | ||||||
| Receivables from sand mine operations | 10,694 | 2,940 | ||||||
| Receivables from midstream operations | 76 | 103 | ||||||
| Accrued derivative contract settlement | 886 | 7,002 | ||||||
| Other receivables | 65 | 66 | ||||||
| Allowance for credit losses | (362 | ) | (362 | ) | ||||
| Accounts receivable, net | $ | 163,430 | $ | 96,751 | ||||
14
The following table reflects the Company's beginning and ending balances of its accounts receivables from purchasers of its oil, natural gas and NGLs for the three months ended March 31, 2026 and the year ended December 31, 2025 (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Beginning balance of accounts receivable from purchasers of oil, natural gas and NGLs | $ | 85,112 | $ | 104,508 | ||||
| Ending balance of accounts receivable from purchasers of oil, natural gas and NGLs | 149,692 | 85,112 | ||||||
Revenue and Royalties Payable
The following table summarizes the Company's revenues held in suspense and royalties payable as of March 31, 2026 and December 31, 2025 (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Revenue held in suspense | $ | 59,504 | $ | 55,488 | ||||
| Revenue and royalties payable | 43,067 | 29,414 | ||||||
| Severance tax payable | 56 | 197 | ||||||
| Total revenue and royalties payable | $ | 102,627 | $ | 85,099 | ||||
Accrued Liabilities
The following table summarizes the Company's current accrued liabilities as of March 31, 2026 and December 31, 2025 (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Accrued capital expenditures | $ | 16,481 | $ | 29,696 | ||||
| Accrued lease operating expenses | 5,130 | 6,217 | ||||||
| Accrued interest | 22,210 | 10,126 | ||||||
| Accrued ad valorem taxes | 7,843 | 31,530 | ||||||
| Accrued general and administrative expense | 248 | 407 | ||||||
| Accrued sand mine operating expenses | 1,936 | 1,474 | ||||||
| Accrued derivative contract settlement | 26,659 | 676 | ||||||
| Accrued payroll expenses | 838 | 2,628 | ||||||
| Other | 795 | 1,121 | ||||||
| Total accrued liabilities | $ | 82,140 | $ | 83,875 | ||||
15
Supplemental Cash Flow Information
The following table provides supplemental disclosures of cash flow information for the three months ended March 31, 2026 and 2025 (in thousands):
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash paid for: | ||||||||
| Interest, net of capitalized interest | $ | (1,957 | ) | $ | (5,008 | ) | ||
| Capitalized interest | (386 | ) | (508 | ) | ||||
| Interest paid | $ | (2,343 | ) | $ | (5,516 | ) | ||
| Income taxes | $ | — | $ | — | ||||
| Non-cash investing activities: | ||||||||
| Change in accrued capital expenditures | $ | (13,215 | ) | $ | 1,415 | |||
| Additions to right of use assets | $ | — | $ | 1,817 | ||||
15. Subsequent Events
The Company evaluated subsequent events occurring after March 31, 2026 through July 20, 2026, the date our condensed consolidated interim financial statements were available for issuance.
In connection with the spring borrowing base redetermination on May 18, 2026, the Company entered into an amendment to its Credit Agreement. The amendment reaffirmed the borrowing base and elected commitments at $1.5 billion.
16
Exhibit 99.4
Magnolia Oil & Gas Operating LLC
Unaudited Pro Forma Condensed Combined Financial Information
On July 20, 2026, Magnolia Oil & Gas Operating LLC (“Magnolia” or the “Company”), announced that it had entered into a Purchase and Sale Agreement (the “Agreement” and the transactions contemplated thereby, the “Transaction”) with privately held WildFire Energy I LLC, pursuant to which the Company agreed to acquire 100% of the issued and outstanding limited liability company interests of WildFire Intermediate Holdings LLC (“WildFire”). WildFire is a Houston-based independent exploration and production company focused on the acquisition, development, and production of oil and natural gas properties in the East Texas Eagle Ford, operating over 1,600 net wells across approximately 690,000 net acres in East Texas. The Transaction is expected to close in the third quarter of 2026, subject to customary closing conditions, including obtaining the requisite shareholder and regulatory approvals.
Total consideration, estimated as of July 6, 2026, was approximately $4.1 billion, subject to customary closing and post-closing adjustments. As of July 19, 2026, and subject to certain adjustments set forth in the Agreement, total consideration consists of 32.2 million shares of Magnolia common stock, par value $0.0001 per share (“Class A Common Stock”), and $2.7 billion in cash paid to WildFire, as well as the assumption of $600 million of WildFire’s outstanding 7.500% Senior Notes due 2029. The cash consideration paid to WildFire consists of (i) $100.0 million of cash on hand, (ii) $970.0 million from Class A Common Stock offering (the “Equity Offering”), (iii) $1.1 billion drawn under Magnolia’s revolving credit facility (the “RBL Facility Financing”) and (iv) $500.0 million from the issuance of new 7% senior notes (“Notes Offering”, and together with the Equity Offering and the RBL Facility Financing, the “Financings”).
The acquisition of WildFire has been assumed to be accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The assets acquired and liabilities assumed will be recorded at their respective fair values as of the closing date. Any transaction costs were assumed to be expensed as incurred in accordance with ASC 805. The unaudited pro forma condensed combined financial statements presented herein have been prepared to reflect the transaction accounting adjustments to Magnolia’s historical condensed consolidated financial information.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2026 gives effect to the Transaction, together with the Financings, as if it had been completed on March 31, 2026. The Unaudited Pro Forma Condensed Combined Statements of Operations for the Three Months Ended March 31, 2026 and the Year Ended December 31, 2025 gives effect to the Transaction as if it had been completed on January 1, 2025. The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Magnolia.
These pro forma adjustments are described in more detail in the accompanying notes to the unaudited pro forma condensed combined financial statements. Additional assumptions and estimates underlying the pro forma adjustments are also described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.
| 1 |
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Magnolia would have been had the Transaction occurred on the dates noted above, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. Future results may vary significantly from the results reflected because of various factors. In Magnolia’s opinion, all adjustments that are necessary to present fairly the unaudited pro forma condensed combined financial information have been made.
The unaudited pro forma condensed combined financial information does not reflect the benefits of potential cost savings or the costs that may be necessary to achieve such savings, opportunities to increase revenue generation or other factors that may result from the Transaction and, accordingly, does not attempt to predict or suggest future results.
The unaudited pro forma financial statements have been developed from and should be read in conjunction with:
| · | The audited consolidated financial statements and accompanying notes of Magnolia contained in Magnolia’s Annual Reports on Form 10-K for the years ended December 31, 2025 and 2024; |
| · | The unaudited consolidated financial statements and accompanying condensed notes contained in Magnolia’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026; |
| · | The audited consolidated financial statements and related notes of WildFire for the years ended December 31, 2025 and 2024, which are included elsewhere in this filing; and |
| · | The unaudited consolidated financial statements and related notes of WildFire for the quarterly period ended March 31, 2026, which are included elsewhere in this filing. |
| 2 |
Magnolia Oil & Gas Operating, LLC
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 2026
| Transaction Accounting Adjustments | |||||||||||||||||||||||||||
| Historical | Conforming and | WildFire | Debt | Pro Forma | |||||||||||||||||||||||
| Magnolia | WildFire | Reclassifications | Acquisition | Financing | Combined | ||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||
| CURRENT ASSETS: | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 124,372 | $ | 13,192 | $ | — | $ | 1,000,000 | (g) | $ | 500,000 | (i) | $ | 18,194 | |||||||||||||
| (2,650,000 | ) | (g) | 1,080,000 | (i) | |||||||||||||||||||||||
| (30,000 | ) | (g) | (19,370 | ) | (i) | ||||||||||||||||||||||
| Trade receivables | 160,767 | — | 161,052 | (a) | (2,629 | ) | (k) | — | 319,190 | ||||||||||||||||||
| Account receivable, net | — | 163,430 | (163,430 | ) | (a) | — | — | — | |||||||||||||||||||
| Joint interest receivables | 32,064 | — | 2,378 | (a) | — | — | 34,442 | ||||||||||||||||||||
| Income tax receivable | 1,325 | — | — | — | — | 1,325 | |||||||||||||||||||||
| Inventory | — | 6,228 | (6,228 | ) | (a) | — | — | — | |||||||||||||||||||
| Short-term derivative instruments | — | 4,624 | — | — | — | 4,624 | |||||||||||||||||||||
| Debt issuance costs | — | 7,219 | — | (7,219 | ) | (f) | — | — | |||||||||||||||||||
| Prepaid and other current assets | — | 6,038 | (6,038 | ) | (a) | — | — | — | |||||||||||||||||||
| Other current assets | 1,135 | — | 6,038 | (a) | — | — | 13,401 | ||||||||||||||||||||
| 6,228 | (a) | ||||||||||||||||||||||||||
| Total current assets | 319,663 | 200,731 | — | (1,689,848 | ) | 1,560,630 | 391,176 | ||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | |||||||||||||||||||||||||||
| Oil and natural gas properties | 5,232,344 | — | 11,030 | (a) | (11,030 | ) | (b) | — | 9,464,160 | ||||||||||||||||||
| 4,471,156 | (a) | (4,471,156 | ) | (b) | |||||||||||||||||||||||
| — | 4,123,525 | (c) | |||||||||||||||||||||||||
| — | 108,291 | (d) | |||||||||||||||||||||||||
| Unproved oil and natural gas properties | — | 11,030 | (11,030 | ) | (a) | — | — | — | |||||||||||||||||||
| Proved oil and natural gas properties | — | 4,471,156 | (4,471,156 | ) | (a) | — | — | — | |||||||||||||||||||
| Other property and equipment | — | 92,952 | (92,952 | ) | (a) | — | — | — | |||||||||||||||||||
| Other | 21,267 | — | 92,952 | (a) | 53,183 | (j) | — | 118,136 | |||||||||||||||||||
| (49,266 | ) | (b) | |||||||||||||||||||||||||
| Accumulated depreciation, depletion and impairment | — | (2,025,697 | ) | 2,025,697 | (a) | — | — | — | |||||||||||||||||||
| Accumulated depreciation, depletion and amortization | (2,667,132 | ) | — | (2,025,697 | ) | (a) | 2,025,697 | (b) | — | (2,667,132 | ) | ||||||||||||||||
| Total property, plant and equipment, net | 2,586,479 | 2,549,441 | — | 1,779,244 | — | 6,915,164 | |||||||||||||||||||||
| OTHER ASSETS | |||||||||||||||||||||||||||
| Debt issuance cost | — | 14,221 | — | (14,221 | ) | (f) | — | — | |||||||||||||||||||
| Long-term derivative instruments | — | 1,485 | — | — | — | 1,485 | |||||||||||||||||||||
| Right of use lease assets | — | 5,812 | (5,812 | ) | (a) | — | — | — | |||||||||||||||||||
| Other long-term assets | 38,336 | 152 | 5,812 | (a) | — | 11,870 | (i) | 56,170 | |||||||||||||||||||
| TOTAL ASSETS | $ | 2,944,478 | $ | 2,771,842 | $ | — | $ | 75,175 | $ | 1,572,500 | $ | 7,363,995 | |||||||||||||||
| LIABILITIES AND EQUITY | |||||||||||||||||||||||||||
| CURRENT LIABILITIES | |||||||||||||||||||||||||||
| Accounts payable | $ | 156,497 | $ | 18,650 | $ | 102,627 | (a) | $ | (2,629 | ) | (k) | $ | — | $ | 275,145 | ||||||||||||
| Accrued liabilities | — | 82,140 | (82,140 | ) | (a) | — | — | — | |||||||||||||||||||
| Revenues and royalties payable | — | 102,627 | (102,627 | ) | (a) | — | — | — | |||||||||||||||||||
| Short-term derivative instruments | — | 134,568 | — | — | — | 134,568 | |||||||||||||||||||||
| Asset retirement obligations | — | 4,462 | (4,462 | ) | (a) | — | — | — | |||||||||||||||||||
| Current portion of long-term debt | — | 41,941 | — | (41,941 | ) | (h) | — | — | |||||||||||||||||||
| Income tax payable | — | 954 | (954 | ) | (a) | — | — | — | |||||||||||||||||||
| Other current liabilities | 134,033 | 2,460 | 82,140 | (a) | 71,000 | (e) | — | 295,049 | |||||||||||||||||||
| 954 | (a) | ||||||||||||||||||||||||||
| 4,462 | (a) | ||||||||||||||||||||||||||
| Total current liabilities | 290,530 | 387,802 | — | 26,430 | — | 704,762 | |||||||||||||||||||||
| LONG-TERM LIABILITIES | |||||||||||||||||||||||||||
| Long-term debt, net | 393,442 | 708,162 | — | (118,000 | ) | (h) | 500,000 | (i) | 2,565,942 | ||||||||||||||||||
| 9,838 | (f) | 1,080,000 | (i) | ||||||||||||||||||||||||
| — | (7,500 | ) | (i) | ||||||||||||||||||||||||
| Long-term derivative instruments | — | 11,135 | — | — | — | 11,135 | |||||||||||||||||||||
| Asset retirement obligations, net of current | 187,471 | 124,715 | — | (20,886 | ) | (d) | — | 291,300 | |||||||||||||||||||
| Deferred tax liabilities | 18,525 | — | 5,972 | (a) | — | — | 24,497 | ||||||||||||||||||||
| Deferred income tax | — | 5,972 | (5,972 | ) | (a) | — | — | — | |||||||||||||||||||
| Operating lease liability | — | 7,452 | (7,452 | ) | (a) | — | — | — | |||||||||||||||||||
| Other long-term liabilities | 18,629 | — | 7,452 | (a) | — | — | 26,081 | ||||||||||||||||||||
| Total long-term liabilities | 618,067 | 857,436 | — | (129,048 | ) | 1,572,500 | 2,918,955 | ||||||||||||||||||||
| EQUITY | |||||||||||||||||||||||||||
| Unit holder contributions | — | 751,574 | — | (751,574 | ) | (b) | — | — | |||||||||||||||||||
| Class A Common Stock | 24 | — | — | 7 | (g) | — | 31 | ||||||||||||||||||||
| Additional paid-in capital | 1,962,082 | — | — | 1,805,390 | (g) | — | 3,737,472 | ||||||||||||||||||||
| (30,000 | ) | (g) | |||||||||||||||||||||||||
| Treasury stock, at cost | (960,737 | ) | — | — | — | — | (960,737 | ) | |||||||||||||||||||
| Retained earnings | 1,036,099 | 775,030 | — | (743,752 | ) | (b) | — | 965,099 | |||||||||||||||||||
| (71,000 | ) | (e) | |||||||||||||||||||||||||
| (7,219 | ) | (f) | |||||||||||||||||||||||||
| (14,221 | ) | (f) | |||||||||||||||||||||||||
| (9,838 | ) | (f) | |||||||||||||||||||||||||
| Accumulated other comprehensive loss | (1,587 | ) | — | — | — | — | (1,587 | ) | |||||||||||||||||||
| Total equity | 2,035,881 | 1,526,604 | — | 177,793 | — | 3,740,278 | |||||||||||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 2,944,478 | $ | 2,771,842 | $ | — | $ | 75,175 | $ | 1,572,500 | $ | 7,363,995 | |||||||||||||||
See Accompanying Notes to the Unaudited Pro Forma Condensed Financial Statements.
| 3 |
Magnolia Oil & Gas Operating, LLC
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Three Months Ended March 31, 2026
| Transaction Accounting Adjustments | |||||||||||||||||||||||||||
| Historical | Conforming and | WildFire | Debt | Pro Forma | |||||||||||||||||||||||
| Magnolia | WildFire | Reclassifications | Acquisition | Financing | Combined | ||||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||||||
| Oil revenues | $ | 257,329 | $ | 249,068 | $ | — | $ | — | $ | — | $ | 506,397 | |||||||||||||||
| Natural gas revenues | 51,800 | 6,893 | — | — | — | 58,693 | |||||||||||||||||||||
| Natural gas liquids revenues | 49,382 | 9,031 | — | — | — | 58,413 | |||||||||||||||||||||
| Other operating revenues | — | 11,859 | — | (4,461 | ) | (g) | — | 7,398 | |||||||||||||||||||
| Total revenues | 358,511 | 276,851 | — | (4,461 | ) | — | 630,901 | ||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||||||
| Lease operating expense | 47,751 | 28,823 | — | — | — | 76,574 | |||||||||||||||||||||
| Gathering, transportation and processing | 18,207 | 108 | — | — | — | 18,315 | |||||||||||||||||||||
| Taxes other than income | 16,387 | 19,859 | — | — | — | 36,246 | |||||||||||||||||||||
| Exploration expenses | 1,742 | 3 | — | — | — | 1,745 | |||||||||||||||||||||
| Asset retirement obligations accretion | 1,857 | — | 2,345 | (a) | (721 | ) | (b) | — | 3,481 | ||||||||||||||||||
| Depreciation, depletion and amortization | 113,359 | — | 68,675 | (a) | 4,391 | (b) | — | 186,425 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | — | 71,020 | (71,020 | ) | (a) | — | — | — | |||||||||||||||||||
| General and administrative expenses | 31,444 | 7,551 | — | — | — | 38,995 | |||||||||||||||||||||
| Other operating expenses | — | 6,477 | — | — | — | 6,477 | |||||||||||||||||||||
| Total operating expenses | 230,747 | 133,841 | — | 3,670 | — | 368,258 | |||||||||||||||||||||
| OPERATING INCOME | 127,764 | 143,010 | — | (8,131 | ) | — | 262,643 | ||||||||||||||||||||
| OTHER EXPENSE | |||||||||||||||||||||||||||
| Interest expense, net | (6,004 | ) | (18,190 | ) | — | 6,940 | (h) | (18,900 | ) | (c) | (46,023 | ) | |||||||||||||||
| (8,750 | ) | (c) | |||||||||||||||||||||||||
| (1,119 | ) | (c) | |||||||||||||||||||||||||
| Other income (expense), net | (36 | ) | 94 | — | — | — | 58 | ||||||||||||||||||||
| Gain (loss) on derivative instruments | — | (273,036 | ) | — | — | — | (273,036 | ) | |||||||||||||||||||
| Total other expense, net | (6,040 | ) | (291,132 | ) | — | 6,940 | (28,769 | ) | (319,001 | ) | |||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 121,724 | (148,122 | ) | — | (1,191 | ) | (28,769 | ) | (56,358 | ) | |||||||||||||||||
| Income tax expense (benefit) | 20,888 | (1,155 | ) | — | (250 | ) | (d) | (6,041 | ) | (d) | 13,442 | ||||||||||||||||
| NET INCOME (LOSS) | 100,836 | (146,967 | ) | — | (941 | ) | (22,728 | ) | (69,800 | ) | |||||||||||||||||
| Less: Net income attributable to noncontrolling interest | 1,011 | — | — | — | — | 1,011 | |||||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK | 99,825 | (146,967 | ) | — | (941 | ) | (22,728 | ) | (70,811 | ) | |||||||||||||||||
| NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK | |||||||||||||||||||||||||||
| Basic | $ | 0.54 | $ | (0.82 | ) | (e) | $ | (0.28 | ) | ||||||||||||||||||
| Diluted | $ | 0.54 | $ | (0.82 | ) | (e) | $ | (0.28 | ) | ||||||||||||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||||||||||||||||||||||||
| Basic | 183,267 | 75,681 | (e) | 258,948 | |||||||||||||||||||||||
| Diluted | 183,279 | 75,669 | (e) | 258,948 | |||||||||||||||||||||||
See Accompanying Notes to the Unaudited Pro Forma Condensed Financial Statements.
| 4 |
Magnolia Oil & Gas Operating, LLC
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Year Ended December 31, 2025
| Transaction Accounting Adjustments | |||||||||||||||||||||||||||
| Historical | Conforming and | WildFire | Debt | Pro Forma | |||||||||||||||||||||||
| Magnolia | WildFire | Reclassifications | Acquisition | Financing | Combined | ||||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||||||
| Oil revenues | $ | 918,027 | $ | 795,358 | $ | — | $ | — | $ | — | $ | 1,713,385 | |||||||||||||||
| Natural gas revenues | 190,252 | 30,018 | — | — | — | 220,270 | |||||||||||||||||||||
| Natural gas liquids revenues | 203,566 | 39,564 | — | — | — | 243,130 | |||||||||||||||||||||
| Other operating revenues | — | 33,187 | — | (10,901 | ) | (g) | — | 22,286 | |||||||||||||||||||
| Total revenues | 1,311,845 | 898,127 | — | (10,901 | ) | — | 2,199,071 | ||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||||||
| Lease operating expense | 186,559 | 119,245 | — | — | — | 305,804 | |||||||||||||||||||||
| Gathering, transportation and processing | 67,096 | 303 | — | — | — | 67,399 | |||||||||||||||||||||
| Taxes other than income | 76,452 | 70,501 | — | — | — | 146,953 | |||||||||||||||||||||
| Exploration expenses | 962 | 6,061 | — | — | — | 7,023 | |||||||||||||||||||||
| Asset retirement obligations accretion | 6,800 | — | 8,331 | (a) | (1,784 | ) | (b) | — | 13,347 | ||||||||||||||||||
| Depreciation, depletion and amortization | 437,757 | — | 267,032 | (a) | 4,919 | (b) | — | 709,708 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | — | 275,363 | (275,363 | ) | (a) | — | — | — | |||||||||||||||||||
| General and administrative expenses | 97,038 | 29,088 | — | — | — | 126,126 | |||||||||||||||||||||
| Transaction costs | — | 102 | — | 71,000 | (f) | — | 71,102 | ||||||||||||||||||||
| Other operating expenses | — | 15,506 | — | — | — | 15,506 | |||||||||||||||||||||
| Total operating expenses | 872,664 | 516,169 | — | 74,135 | — | 1,462,968 | |||||||||||||||||||||
| OPERATING INCOME | 439,181 | 381,958 | — | (85,036 | ) | — | 736,103 | ||||||||||||||||||||
| OTHER INCOME (EXPENSE) | |||||||||||||||||||||||||||
| Interest expense, net | (21,617 | ) | (82,700 | ) | — | 37,700 | (h) | (75,600 | ) | (c) | (181,702 | ) | |||||||||||||||
| (35,000 | ) | (c) | |||||||||||||||||||||||||
| (4,485 | ) | (c) | |||||||||||||||||||||||||
| Other income (expense), net | (153 | ) | 287 | — | — | — | 134 | ||||||||||||||||||||
| Gain on derivative instruments | — | 166,816 | — | — | — | 166,816 | |||||||||||||||||||||
| Total other income (expense), net | (21,770 | ) | 84,403 | — | 37,700 | (115,085 | ) | (14,752 | ) | ||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 417,411 | 466,361 | — | (47,336 | ) | (115,085 | ) | 721,351 | |||||||||||||||||||
| Income tax expense | 80,132 | 3,959 | — | (9,941 | ) | (d) | (24,168 | ) | (d) | 49,982 | |||||||||||||||||
| NET INCOME | 337,279 | 462,402 | — | (37,395 | ) | (90,917 | ) | 671,369 | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interest | 12,027 | — | — | — | — | 12,027 | |||||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK | 325,252 | 462,402 | — | (37,395 | ) | (90,917 | ) | 659,342 | |||||||||||||||||||
| NET INCOME PER SHARE OF CLASS A COMMON STOCK | |||||||||||||||||||||||||||
| Basic | $ | 1.73 | $ | 0.77 | (e) | $ | 2.50 | ||||||||||||||||||||
| Diluted | $ | 1.73 | $ | 0.77 | (e) | $ | 2.50 | ||||||||||||||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||||||||||||||||||||||||
| Basic | 185,581 | 75,681 | (e) | 261,262 | |||||||||||||||||||||||
| Diluted | 185,593 | 75,681 | (e) | 261,274 | |||||||||||||||||||||||
See Accompanying Notes to the Unaudited Pro Forma Condensed Financial Statements.
| 5 |
Magnolia Oil & Gas Operating LLC
Notes to Unaudited Pro Forma Condensed Combined Financial Information
| 1. | Basis of Presentation |
The accompanying unaudited pro forma condensed combined financial statements were prepared based on the historical consolidated financial statements of Magnolia and the historical consolidated financial statements of WildFire. The Transaction has been assumed to be accounted for as a business combination in accordance with ASC 805. The assets acquired and liabilities assumed are estimated at their respective fair values as of March 31, 2026. Any transaction costs were assumed to be expensed as incurred in accordance with ASC 805.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the Three Months Ended March 31, 2026 and the Year Ended December 31, 2025 were prepared assuming the Transaction occurred on January 1, 2025. The Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2026 was prepared as if the Transaction had occurred March 31, 2026. These pro forma adjustments are described in more detail in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Magnolia would have been had the Transaction occurred on the dates noted above, nor are they indicative of future consolidated results of operations or consolidated financial position. Future results may vary significantly from the results reflected in the unaudited pro forma condensed combined financial statement of operations. In Magnolia’s opinion, all adjustments that are necessary to present fairly the unaudited pro forma condensed combined financial information have been made.
| 2. | Consideration and Purchase Price Allocation |
The preliminary allocation of the total purchase price is based upon management’s estimates of, and assumptions related to, the fair value of assets to be acquired and liabilities to be assumed as of March 31, 2026 using currently available information and market data. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates and is therefore incomplete, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. The purchase price allocation will be finalized after closing has occurred, post-close adjustments are determined, and the final valuation of assets acquired and liabilities assumed has been completed.
The preliminary purchase price allocation is subject to change due to several factors, including but not limited to:
| · | Changes in the value of Common Shares of Magnolia up to the close date, which could significantly change the preliminary amount of consideration transferred used in these unaudited pro forma condensed combined financial statements; |
| 6 |
| · | Changes to Magnolia’s assessment as to whether, under ASC 805, the acquisition of the Transaction represents a business combination or asset acquisition, along with changes in estimated direct transaction costs, which could significantly change the preliminary allocation of value to assets acquired and liabilities assumed in these unaudited pro forma condensed combined financial statements; |
| · | Changes in the identified oil and gas properties, specifically related to unevaluated properties not being depleted, which could significantly change the amount of pro forma depletion expense used in these unaudited pro forma condensed combined financial statements; and |
| · | Changes in the estimated fair value of assets acquired and liabilities assumed as of the closing date, which could result from changes in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors, which could significantly change the preliminary values assigned to the assets acquired in these unaudited pro forma condensed combined financial statements. |
| 7 |
The estimated consideration transferred and the fair value of assets acquired and liabilities assumed by Magnolia, as of March 31, 2026, are as follows (in thousands, except shares):
| Consideration: | ||||
| Cash Consideration | $ | 2,650,000 | ||
| Shares of Magnolia Class A Common Stock to be issued | 32,203,000 | |||
| Magnolia Class A Common Stock price at July 6, 2026 | $ | 25.01 | ||
| Common Stock consideration | $ | 805,397 | ||
| Total consideration | $ | 3,455,397 | ||
| Fair value of assets acquired: | ||||
| Cash and cash equivalents | $ | 13,192 | ||
| Trade receivables | 158,423 | |||
| Joint interest receivables | 2,378 | |||
| Derivative instruments | 6,109 | |||
| Other current assets | 12,266 | |||
| Oil and natural gas properties | 4,231,816 | |||
| Other | 96,869 | |||
| Other long-term assets | 5,964 | |||
| Amounts attributable to assets acquired | $ | 4,527,017 | ||
| Fair value of liabilities assumed: | ||||
| Accounts payable | $ | 118,648 | ||
| Derivative instruments | 145,703 | |||
| Other current liabilities | 85,554 | |||
| Asset retirement obligations | 108,291 | |||
| Long-term debt, net | 600,000 | |||
| Deferred tax liabilities | 5,972 | |||
| Other long-term liabilities | 7,452 | |||
| Amounts attributable to liabilities assumed | $ | 1,071,620 | ||
| Total identifiable net assets | $ | 3,455,397 | ||
Magnolia believes that up to a 30 percent fluctuation in the market price of its Class A Common Stock is reasonably possible based upon historical price fluctuations. The following table shows the effect of changes in Magnolia’s Class A Common Stock price and the resulting impact on total consideration (in thousands):
| Change in Price of Magnolia Common Shares | Magnolia Common Share Price | Estimated Total Consideration | |||||||
| Increase of 20% | $ | 30.01 | $ | 3,616,412 | |||||
| Increase of 30% | $ | 32.51 | $ | 3,696,920 | |||||
| Decrease of 20% | $ | 20.01 | $ | 3,294,382 | |||||
| Decrease of 30% | $ | 17.51 | $ | 3,213,875 | |||||
The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation.
Significant unobservable inputs included future commodity prices adjusted for differentials, projections of estimated quantities of recoverable reserves, forecasted production based on decline curve analysis, estimated timing and amount of future operating and development costs, and a weighted average cost of capital.
| 8 |
| 3. | Adjustments to Unaudited Pro Forma Condensed Consolidated Balance Sheet and Unaudited Pro Forma Condensed Consolidated Statements of Operations |
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Magnolia. Actual results may differ materially from the assumptions and estimates contained herein.
The pro forma adjustments are based on currently available information and certain estimates and assumptions that Magnolia believes provide a reasonable basis for presenting the significant effects of the Transaction. General descriptions of the pro forma adjustments are provided below.
Unaudited Pro Forma Condensed Combined Balance Sheet
The following adjustments were made in the preparation of the Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2026:
| (a) | Adjustments necessary to reclassify various assets and liabilities to conform to the presentation of Magnolia. |
| a. | Current assets: Reclassifications of (i) accounts receivable of $163.4 million to trade receivables of $161.1 million and joint interest receivables of $2.4 million, and (ii) $6.0 million of prepaid expenses and $6.2 million of inventory to other current assets. |
| b. | Property, plant and equipment: Reclassification of (i) $11.0 million of unproved oil and gas properties and $4.5 billion of proved oil and gas properties to oil and natural gas properties, (ii) $2.0 billion of accumulated depreciation, depletion and impairment to accumulated depreciation, depletion and amortization, and (iii) $93.0 million of other property and equipment to other. |
| c. | Long-term assets: Reclassification of $5.8 million of right of use lease assets to other long-term assets. |
| d. | Current liabilities: Reclassification of $102.6 million of revenue and royalties payable to accounts payable, and reclassification of (i) $82.1 million of accrued liabilities, (ii) $4.5 million of asset retirement obligations and (iii) 1.0 million of income tax payable to other current liabilities. |
| e. | Long-term liabilities: Reclassification of (i) $6.0 million of deferred income tax to deferred tax liabilities and (ii) $7.5 million of operating lease liability to other long-term liabilities. |
| (b) | Adjustments necessary to remove the historical book basis of proved oil and natural gas properties, unproved oil and natural gas properties, accumulated depreciation, depletion, and impairment, the gross value of WildFire's pipeline that was included in the estimated fair value of oil and natural gas properties, as well as the historical book basis of unit holders’ equity of WildFire. |
| (c) | Adjustments necessary to reflect the estimated fair value of proved and unproved oil and natural gas properties. The fair value of proved oil and natural gas properties was estimated using a discounted cash flow approach and strip oil and natural gas prices as of July 6, 2026. |
| 9 |
| (d) | Adjustments necessary to reflect the estimated fair value of asset retirement obligations assumed as of March 31, 2026. The fair value measurements of asset retirement obligations was based on assumptions consistent with Magnolia, the acquirer. |
| (e) | Adjustment necessary to reflect estimated direct costs for the acquisition of WildFire expected to be incurred subsequent to March 31, 2026. These estimated direct costs will be incurred during the latter part of 2026 and have been retrospectively reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet as though incurred and payable at March 31, 2026. |
| (f) | The outstanding debt of WildFire includes $31.3 million of unamortized debt issuance costs, which will be written off by Magnolia and is shown as a charge against retained earnings. |
| (g) | Adjustment necessary to reflect the issuance to WildFire of 32,203,000 Class A Common Shares of Magnolia, based on the July 6, 2026 closing price of Magnolia of $25.01 per Common Share, or $805.4 million. The Company also expects to receive approximately $970.0 million in net proceeds, after deducting approximately $30.0 million of underwriting discounts, commissions and offering expenses from a Class A Common Stock equity offering of approximately 43,478,261 Common Shares at $23.00, as part of the acquisition. Total cash consideration payable to WildFire is $2.7 billion, reconciled as follows (in thousands). |
| Source | Amount | |||
| Cash on hand | $ | 100,000 | ||
| Class A share equity offering | 970,000 | |||
| Borrowings under revolver | 1,080,000 | |||
| Issuance of 7% senior notes | 500,000 | |||
| Total cash consideration | $ | 2,650,000 | ||
| (h) | Adjustment necessary to reflect (i) previously recorded acquisition deferred payments of WildFire that will not be transferred over to the buyer as part of the transaction, and (ii) WildFire's $118.0 million revolver that will be paid off by WildFire prior to closing. |
| (i) | Adjustment necessary to reflect (i) the issuance $500.0 million of 7% senior notes and (ii) $1.1 billion draw on the Company’s 7% revolver to help fund the acquisition. As part of the debt financing, the Company had debt issuance costs of $11.9 million and $7.5 million related to the revolver draw and the 7% senior notes, respectively. |
| (j) | Adjustment to reflect the estimated fair value of the sand pit acquired from WildFire. The estimated fair value was determined using a valuation methodology based on a multiple of projected future earnings. |
| (k) | Adjustment necessary to reflect the removal of sand accounts receivable on the books of WildFire as they relate to sand sales made to Magnolia. |
| 10 |
Unaudited Pro Forma Condensed Consolidated Statements of Operations
The following adjustments were made in the preparation of the Unaudited Pro Forma Condensed Combined Statements of Operations for the Three Months Ended March 31, 2026 and the Year Ended December 31, 2025:
| (a) | Adjustments necessary to reclassify various income and expenses to conform to the presentation of Magnolia. |
| a. | March 31, 2026 |
| i. | Operating Expenses: Reclassification of $71.0 million of depreciation, depletion, amortization and accretion of which $2.3 million was reclassed to asset retirement obligation accretion and $68.7 million was reclassed to depreciation, depletion and amortization. |
| b. | December 31, 2025 |
| i. | Operating Expenses: Reclassification of $275.4 million of depreciation, depletion, amortization and accretion of which $8.3 million was reclassed to asset retirement obligation accretion and $267.0 million was reclassed to depreciation, depletion and amortization. |
| (b) | Adjustments necessary to reflect depreciation, depletion, and amortization expense resulting from the change in basis of property and equipment acquired and accretion expense from new asset retirement obligations recognized as a result of the acquisition of WildFire. The depletion adjustment was calculated using the unit-of-production method under the successful efforts method of accounting. |
| (c) | Adjustment necessary to reflect (i) the addition of estimated interest expense in the period presented with respect to the incremental revolver borrowings of $1.1 billion and the new $500.0 million 7% Senior Notes, and (ii) the amortization of debt issuance costs associated with the incremental revolver borrowing and the new 7% Senior Notes. The interest rate utilized on the revolver borrowings was 7.0% per annum. A one-eighth point change in interest rates as of March 31, 2026 would change variable rate interest expense by $0.3 million and $1.4 million, respectively, for the three months ended March 31, 2026 and year-ended December 31, 2025. |
| (d) | Adjustment necessary to reflect estimated income taxes from the operations of WildFire. Income taxes were estimated by applying the statutory rate of 21.0% to the transaction accounting adjustments. |
| (e) | The following table reconciles historical and pro forma basic and diluted earnings per share for the period indicated: |
| 11 |
| For the Three Months Ended March 31, 2026 | For the Year Ended December 31, 2025 | |||||||||||||||
| (in thousands, except per share data) | Historical | Pro Forma | Historical | Pro Forma | ||||||||||||
| Basic: | ||||||||||||||||
| Net income (loss) attributable to Class A Common Stock | $ | 99,825 | $ | (70,811 | ) | $ | 325,252 | $ | 659,342 | |||||||
| Less: Dividends and net income allocated to participating securities | 1,678 | 657 | 4,457 | 6,763 | ||||||||||||
| Net income (loss), net of participating securities | $ | 98,147 | $ | (71,468 | ) | $ | 320,795 | $ | 652,579 | |||||||
| Weighted average number of common shares outstanding during the period - basic | 183,267 | 258,948 | 185,581 | 261,262 | ||||||||||||
| Net income (loss) per share of Class A Common Stock - basic | $ | 0.54 | $ | (0.28 | ) | $ | 1.73 | $ | 2.50 | |||||||
| Diluted: | ||||||||||||||||
| Net income (loss) attributable to Class A Common Stock | $ | 99,825 | $ | (70,811 | ) | $ | 325,252 | $ | 659,342 | |||||||
| Less: Dividends and net income allocated to participating securities | 1,678 | 657 | 4,457 | 6,763 | ||||||||||||
| Net income (loss), net of participating securities | $ | 98,147 | $ | (71,468 | ) | $ | 320,795 | $ | 652,579 | |||||||
| Weighted average number of common shares outstanding during the period - basic | 183,267 | 258,948 | 185,581 | 261,262 | ||||||||||||
| Add: Dilutive effect stock based compensation and other | 12 | — | 12 | 12 | ||||||||||||
| Weighted average number of common shares outstanding during the period - diluted | 183,279 | 258,948 | 185,593 | 261,274 | ||||||||||||
| Net income (loss) per share of Class A Common Stock - diluted | $ | 0.54 | $ | (0.28 | ) | $ | 1.73 | $ | 2.50 | |||||||
| (f) | Adjustment necessary to reflect estimated direct costs expected to be incurred subsequent to March 31, 2026 for the acquisition of WildFire. These estimated direct costs will be incurred during the latter part of 2026 and have been retrospectively reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations as though incurred for the year ended December 31, 2025. |
| (g) | Adjustment necessary to eliminate WildFire sand sales made to Magnolia at March 31, 2026 and December 31, 2025 of $4.5 million and $10.9 million, respectively. |
| (h) | Adjustment necessary to reflect the removal of interest associated with WildFire's $118.0 million revolver that was paid off by WildFire prior to closing. |
| 12 |
| 4. | Supplemental Unaudited Pro Forma Combined Oil and Natural Gas Reserves and Standardized Measure Information |
The following tables set forth information with respect to the historical and pro forma combined estimated oil and natural gas reserves as of December 31, 2025 for Magnolia and WildFire. The reserve information of Magnolia has been prepared by Miller and Lents, independent petroleum engineers. WildFire reserve information has been prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers. The following unaudited pro forma combined proved reserve information is not necessarily indicative of the results that might have occurred had the Transaction taken place on January 1, 2025, nor is it intended to be a projection of future results. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Periodic revisions or removals of estimated reserves and future cash flows may be necessary as a result of a number of factors, including reservoir performance, new drilling, crude oil and natural gas prices, changes in costs, technological advances, new geological or geophysical data, changes in business strategies, or other economic factors. Accordingly, proved reserve estimates may differ significantly from the quantities of crude oil and natural gas ultimately recovered. For both Magnolia and WildFire, the reserve estimates shown below were determined using the average first day of the month price for each of the preceding 12-months for oil and natural gas for the year ended December 31, 2025.
We anticipate WildFire’s total proved undeveloped reserves to be updated due to the timing associated with Magnolia’s current development plan, which will result in WildFire’s proved undeveloped reserves being reduced to reflect a one-year development plan. The combined company will re-evaluate WildFire’s reserves subsequent to the transaction.
| 13 |
| ESTIMATED OIL AND NATURAL GAS RESERVES | ||||||||||||
| As of December 31, 2025 | ||||||||||||
| Magnolia | WildFire | Pro Forma Combined | ||||||||||
| Natural Gas (Bcf) | ||||||||||||
| Balance December 31, 2024 | 336.8 | 174.3 | 511.1 | |||||||||
| Revisions of previous estimates | 46.0 | (6.9 | ) | 39.1 | ||||||||
| Purchases of reserves in place | 5.9 | 0.2 | 6.1 | |||||||||
| Extensions | 84.3 | 52.1 | 136.4 | |||||||||
| Production | (68.9 | ) | (14.3 | ) | (83.2 | ) | ||||||
| Balance December 31, 2025 | 404.1 | 205.4 | 609.5 | |||||||||
| Natural Gas Liquids (MMBbls) | ||||||||||||
| Balance December 31, 2024 | 58.3 | 34.7 | 93.0 | |||||||||
| Revisions of previous estimates | 0.1 | (1.3 | ) | (1.2 | ) | |||||||
| Purchases of reserves in place | 0.9 | — | 0.9 | |||||||||
| Extensions | 14.1 | 9.7 | 23.8 | |||||||||
| Production | (10.4 | ) | (2.6 | ) | (13.0 | ) | ||||||
| Balance December 31, 2025 | 63.0 | 40.5 | 103.5 | |||||||||
| Crude Oil (MMBbls) | ||||||||||||
| Balance December 31, 2024 | 77.2 | 190.9 | 268.1 | |||||||||
| Revisions of previous estimates | (0.9 | ) | (14.0 | ) | (14.9 | ) | ||||||
| Purchases of reserves in place | 1.2 | 0.1 | 1.3 | |||||||||
| Extensions | 16.8 | 31.8 | 48.6 | |||||||||
| Production | (14.5 | ) | (12.4 | ) | (26.9 | ) | ||||||
| Balance December 31, 2025 | 79.8 | 196.4 | 276.2 | |||||||||
| Total (MMboe) | ||||||||||||
| Balance December 31, 2024 | 191.7 | 254.6 | 446.3 | |||||||||
| Revisions of previous estimates | 6.9 | (16.5 | ) | (9.6 | ) | |||||||
| Purchases of reserves in place | 3.1 | 0.2 | 3.3 | |||||||||
| Extensions | 44.9 | 50.3 | 95.2 | |||||||||
| Production | (36.4 | ) | (17.4 | ) | (53.8 | ) | ||||||
| Balance December 31, 2025 | 210.2 | 271.2 | 481.4 | |||||||||
| ESTIMATED OIL AND NATURAL GAS RESERVES | ||||||||||||
| As of December 31, 2025 | ||||||||||||
| Magnolia | WildFire | Pro Forma Combined | ||||||||||
| Proved Developed Reserves: | ||||||||||||
| Crude Oil (MMBbls) | 64.6 | 100.3 | 164.9 | |||||||||
| Natural Gas (Bcf) | 317.3 | 109.0 | 426.3 | |||||||||
| Natural Gas Liquids (MMBbls) | 49.1 | 21.3 | 70.4 | |||||||||
| Total (MMboe) | 166.6 | 139.8 | 306.4 | |||||||||
| Proved Undeveloped Reserves: | ||||||||||||
| Crude Oil (MMBbls) | 15.2 | 96.1 | 111.3 | |||||||||
| Natural Gas (Bcf) | 86.8 | 96.4 | 183.2 | |||||||||
| Natural Gas Liquids (MMBbls) | 13.9 | 19.2 | 33.1 | |||||||||
| Total (MMboe) | 43.6 | 131.4 | 175.0 | |||||||||
The following table presents the Standardized Measure of Discounted Future Net Cash Flows (as defined by FASB Accounting Standards Codification 932) relating to the proved crude oil and natural gas reserves of Magnolia and of WildFire on a pro forma combined basis as of December 31, 2025. The Pro Forma Combined Standardized Measure shown below represents estimates only and should not be construed as the market value of either Magnolia’s crude oil and natural gas reserves or the crude oil and natural gas reserves attributable to WildFire (in thousands).
| 14 |
| STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOWS | ||||||||||||
| As of December 31, 2025 | ||||||||||||
| Magnolia | WildFire | Pro Forma Combined | ||||||||||
| Future cash inflows | $ | 7,408,319 | $ | 14,187,714 | $ | 21,596,033 | ||||||
| Future production costs | (2,632,470 | ) | (4,244,624 | ) | (6,877,094 | ) | ||||||
| Future development costs | (372,764 | ) | (2,040,812 | ) | (2,413,576 | ) | ||||||
| Future income tax expenses | (688,729 | ) | (74,486 | ) | (763,215 | ) | ||||||
| Future net cash flows | 3,714,356 | 7,827,792 | 11,542,148 | |||||||||
| 10% discount to reflect timing of cash flows | (1,195,826 | ) | (3,759,423 | ) | (4,955,249 | ) | ||||||
| Standardized measure of discounted future net cash flows | $ | 2,518,530 | $ | 4,068,369 | $ | 6,586,899 | ||||||
The reserve estimates presented above were derived from the historical reserve information of Magnolia and WildFire included in this registration statement. Future development timing, development expenditures, operating costs, reservoir performance as well as commodity prices will affect the reserve volumes attributable to the combined company, which will likely result in material revisions to total proved developed and undeveloped reserves. For example, we anticipate the WildFires’ total proved undeveloped reserves to be updated due to the timing associated with Magnolia’s current development plan, which will result in WildFire’s proved undeveloped reserves being reduced to reflect a one-year development plan. The combined company will re-evaluate these reserves subsequent to the transaction.
The following table sets forth the changes in the Standardized Measure of discounted future net cash flows attributable to estimated net proved crude oil and natural gas reserves of Magnolia and WildFire on a pro forma combined basis for the year ending December 31, 2025 (in thousands):
| CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS | ||||||||||||
| For the Year Ended December 31, 2025 | ||||||||||||
| Magnolia | WildFire | Pro Forma Combined | ||||||||||
| Standardized measure of discounted future net cash flows, beginning of period | $ | 2,581,807 | $ | 4,619,717 | $ | 7,201,524 | ||||||
| Sales of oil, natural gas, and NGLs produced during the period, net of production costs | (981,738 | ) | (675,158 | ) | (1,656,896 | ) | ||||||
| Purchases of reserves in place | 37,491 | 8,478 | 45,969 | |||||||||
| Extensions | 692,547 | 568,645 | 1,261,192 | |||||||||
| Changes in estimated future development costs | (7,667 | ) | 473,677 | 466,010 | ||||||||
| Net change in prices and production costs | (614,037 | ) | (959,978 | ) | (1,574,015 | ) | ||||||
| Previously estimated development costs incurred during the period | 221,064 | (186,202 | ) | 34,862 | ||||||||
| Revisions in quantity estimates | 129,520 | (324,325 | ) | (194,805 | ) | |||||||
| Accretion of discount | 307,682 | 466,101 | 773,783 | |||||||||
| Net change in income taxes | 19,090 | 2,101 | 21,191 | |||||||||
| Net change in timing of production and other | 132,771 | 75,313 | 208,084 | |||||||||
| Standardized measure of discounted future net cash flows, end of period | $ | 2,518,530 | $ | 4,068,369 | $ | 6,586,899 | ||||||
| 15 |
Exhibit 99.5
January 14, 2026
Mr. Steve Habachy
WildFire Energy I LLC
920 Memorial City Way, Suite 1400
Houston, Texas 77024
Dear Mr. Habachy:
In accordance with your request, we have estimated the proved and probable reserves and future revenue, as of December 31, 2025, to the WildFire Energy I LLC (WildFire) interest in certain oil and gas properties located in Texas. We completed our evaluation on or about the date of this letter. It is our understanding that the proved reserves estimated in this report constitute all of the proved reserves owned by WildFire. The estimates in this report have been prepared in accordance with the definitions and regulations of the U.S. Securities and Exchange Commission (SEC) and conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities— Oil and Gas, except that future income taxes are excluded for all properties and, as requested, per- well overhead expenses are excluded for the operated properties. Definitions are presented immediately following this letter.
As presented in the accompanying summary projections, Tables I through V, we estimate the net reserves and future net revenue to the WildFire interest in these properties, as of December 31, 2025, to be:
| Net Reserves | Future Net Revenue(1) (M$) | |||||||||||||||||||
| Oil | NGL | Gas | Present Worth | |||||||||||||||||
| Category | (MBBL) | (MBBL) | (MMCF) | Total | at 10% | |||||||||||||||
| Proved Developed Producing | 100,327.4 | 21,303.4 | 109,046.0 | 4,333,564.4 | 2,456,968.2 | |||||||||||||||
| Proved Developed Shut-in | 0.0 | 0.0 | 0.0 | (37,550.3 | ) | (23,315.8 | ) | |||||||||||||
| Proved Undeveloped | 96,127.4 | 19,233.5 | 96,376.3 | 3,606,266.1 | 1,673,904.4 | |||||||||||||||
| Total Proved | 196,454.8 | 40,536.8 | 205,422.4 | 7,902,278.7 | 4,107,556.6 | |||||||||||||||
| Probable | 107,843.7 | 18,606.6 | 113,115.5 | 3,595,575.3 | 786,630.5 | |||||||||||||||
Totals may not add because of rounding.
(1) Future net revenue is after deducting estimated abandonment costs.
The oil volumes shown include crude oil and condensate. Oil and natural gas liquids (NGL) volumes are expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at standard temperature and pressure bases. Oil equivalent volumes shown in this report are expressed in thousands of barrels of oil equivalent (MBOE), determined using the ratio of 6 MCF of gas to 1 barrel of oil.
Reserves categorization conveys the relative degree of certainty; reserves subcategorization is based on development and production status. No study was made to determine whether possible reserves might be established for these properties. The estimates of reserves and future revenue included herein have not been adjusted for risk. This report does not include any value that could be attributed to interests in undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated.
Gross revenue shown in this report is WildFire's share of the gross (100 percent) revenue from the properties prior to any deductions. Future net revenue is after deductions for WildFire's share of production taxes, ad valorem taxes, capital costs, abandonment costs, and operating expenses but before consideration of any income taxes.
The future net revenue has been discounted at an annual rate of 10 percent to determine its present worth, which is shown to indicate the effect of time on the value of money. Future net revenue presented in this report, whether discounted or undiscounted, should not be construed as being the fair market value of the properties.
Prices used in this report are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December 2025. For oil and NGL volumes, the average West Texas Intermediate spot price of $66.01 per barrel is adjusted for quality, transportation fees, and market differentials. For gas volumes, the average Henry Hub spot price of $3.387 per MMBTU is adjusted for energy content, transportation fees, and market differentials. All prices are held constant throughout the lives of the properties. Average adjusted product prices weighted by production over the remaining lives of the properties are shown for each category in the following table:
| Average Adjusted Prices | ||||||||||||
| Oil | NGL | Gas | ||||||||||
| Category | ($/Barrel) | ($/Barrel) | ($/MCF) | |||||||||
| Proved | 65.20 | 20.26 | 2.716 | |||||||||
| Probable | 65.32 | 19.80 | 2.677 | |||||||||
Operating costs used in this report are based on operating expense records of WildFire. For the nonoperated properties, these costs include the per-well overhead expenses allowed under joint operating agreements along with estimates of costs to be incurred at and below the district and field levels. As requested, operating costs for the operated properties include only direct lease- and field-level costs. Operating costs have been divided into per-well costs and per-unit-of-production costs. For all properties, headquarters general and administrative overhead expenses of WildFire are not included. Operating costs are not escalated for inflation.
Capital costs used in this report were provided by WildFire and are based on authorizations for expenditure and actual costs from recent activity. Capital costs are included as required for new development wells and production equipment. Based on our understanding of future development plans, a review of the records provided to us, and our knowledge of similar properties, we regard these estimated capital costs to be reasonable. Abandonment costs used in this report are WildFire's estimates of the costs to abandon the wells and production facilities, net of any salvage value. Capital costs and abandonment costs are not escalated for inflation.
For the purposes of this report, we did not perform any field inspection of the properties, nor did we examine the mechanical operation or condition of the wells and facilities. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs due to such possible liability.
We have made no investigation of potential volume and value imbalances resulting from overdelivery or underdelivery to the WildFire interest. Therefore, our estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on WildFire receiving its net revenue interest share of estimated future gross production. Additionally, we have made no specific investigation of any firm transportation contracts that may be in place for these properties; our estimates of future revenue include the effects of such contracts only to the extent that the associated fees are accounted for in the historical field- and lease-level accounting statements.
The reserves shown in this report are estimates only and should not be construed as exact quantities. Proved reserves are those quantities of oil and gas which, by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible; probable and possible reserves are those additional reserves which are sequentially less certain to be recovered than proved reserves. Estimates of reserves may increase or decrease as a result of market conditions, future operations, changes in regulations, or actual reservoir performance. In addition to the primary economic assumptions discussed herein, our estimates are based on certain assumptions including, but not limited to, that the properties will be developed consistent with current development plans as provided to us by WildFire, that the properties will be operated in a prudent manner, that no governmental regulations or controls will be put in place that would impact the ability of the interest owner to recover the reserves, and that our projections of future production will prove consistent with actual performance. If the reserves are recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions made while preparing this report.
For the purposes of this report, we used technical and economic data including, but not limited to, well logs, geologic maps, well test data, production data, historical price and cost information, and property ownership interests. The reserves in this report have been estimated using deterministic methods; these estimates have been prepared in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers (SPE Standards). We used standard engineering and geoscience methods, or a combination of methods, including performance analysis, volumetric analysis, and analogy, that we considered to be appropriate and necessary to categorize and estimate reserves in accordance with SEC definitions and regulations. A substantial portion of these reserves are for undeveloped locations; such reserves are based on estimates of reservoir volumes and recovery efficiencies along with analogy to properties with similar geologic and reservoir characteristics. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.
The data used in our estimates were obtained from WildFire, public data sources, and the nonconfidential files of Netherland, Sewell & Associates, Inc. and were accepted as accurate. Supporting work data are on file in our office. We have not examined the titles to the properties or independently confirmed the actual degree or type of interest owned. The technical persons primarily responsible for preparing the estimates presented herein meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the SPE Standards. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do not own an interest in these properties nor are we employed on a contingent basis.
| Sincerely, | ||||
| NETHERLAND, SEWELL & ASSOCIATES, INC. | ||||
| Texas Registered Engineering Firm F-2699 | ||||
| By: | /s/ Richard B. Talley, Jr., P.E. | |||
| Richard B. Talley, Jr., P.E. | ||||
| Chairman and Chief Executive Officer | ||||
| By: | /s/ C. Ashley Smith, P.E. | By: | /s/ Edward C. Roy III, P.G. | |
| C. Ashley Smith, P.E. 100560 | Edward C. Roy III, P.G. 2364 | |||
| Vice President | Vice President |
| Date Signed: January 14, 2026 |  |
Date Signed: January 14, 2026 |  |
CAS:KJL