We may, at our option, at any time or from time to time, redeem any or all of the Preferred Shares at $27.50 per Preferred Share plus any accumulated and unpaid distributions (whether or not authorized or declared) up to but excluding the redemption date. Any partial redemption will be on a pro rata basis or by lot. Each Preferred Share has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless redeemed by us. See the section entitled “Description of Capital and Preferred Shares—Series A Preferred Shares—Redemption” for additional details.

In addition, except under limited circumstances as described in this Offering Circular, holders of the Preferred Shares generally do not have any voting rights. See the section entitled “Description of Capital and Preferred Shares—Series A Preferred Shares—Limited Voting Rights” for additional details.

We are currently a member-managed limited liability company organized under the laws of the State of Delaware, and do not have a board of directors, board of managers, or similar construct (or any committees thereof). In addition, we are wholly owned and controlled by Phoenix Equity Holdings, LLC, a Delaware limited liability company (“Phoenix Equity”). Phoenix Equity is our sole member and, as such, directs our business and operations, including appointment and compensation of our officers. Lion of Judah Capital, LLC, a Delaware limited liability company (“LJC”), controls Phoenix Equity and, therefore, indirectly has control over our management. Daniel Ferrari and Charlene Ferrari each own 50% of the voting membership interests in, and are the managers of, LJC. Adam Ferrari, our Chief Executive Officer and the son of Daniel and Charlene Ferrari, owns 100% of the economic interests in LJC, but has no voting or managerial interest in LJC. Adam Ferrari is also the manager of Phoenix Equity. Following the closing of this offering, we will be a manager-managed limited liability company and our business and affairs will be managed under the direction of a board of directors. In addition, Phoenix Equity will hold all of our common shares, representing limited liability company interests, and, as a result, other than under the limited circumstances described in this Offering Circular in which holders of the Preferred Shares have voting rights, we will continue to be controlled by Phoenix Equity. As a result of this concentrated control, Phoenix Equity will have the ability to determine corporate matters for the foreseeable future, including with respect to the power to add and remove any of our directors at any time with or without cause and may take action by written consent without a meeting of shareholders. See “Risk Factors—Risks Related to the Phoenix Equity’s Ownership of Our Common Shares and Certain LLCA Provisions—The interests of holders of Preferred Shares may conflict with the interests of our controlling shareholder.”

Following the closing of this offering, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE American. As a “controlled company,” we intend to rely on the exemptions from certain corporate governance standards of the NYSE American. In addition, following the closing of this offering, we will be a company listing only preferred securities on NYSE American and thus will only be required to comply with certain corporate governance requirements, including with respect to our audit committee, to the extent required by Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See the section entitled “Risk Factors—Risks Related to the Preferred Shares and this Offering—We will be a “controlled company” within the meaning of the corporate governance standards of the NYSE American. We intend to rely on exemptions from certain corporate governance standards. You will not have the same protections afforded to stockholders of companies that are subject to such requirements” and “—We will be a company listing only preferred securities on NYSE American and thus will only be required to comply with certain corporate governance requirements, including with respect to our audit committee, to the extent required by Rule 10A-3 under the Exchange Act” for additional details.

The Preferred Shares will be senior to our common shares with respect to distribution rights and rights upon our liquidation, dissolution or winding up. The Preferred Shares will be junior to all of our existing and future indebtedness and to the indebtedness of our existing subsidiaries and any future subsidiaries. As of March 31, 2025, after giving effect to the borrowings of additional $150.0 million in aggregate under the Fortress Credit Agreement (as defined below) in April, May and August 2025, we would have had approximately $1,234.4 million of indebtedness outstanding. In addition, from time to time we may conduct offerings of notes pursuant to Regulation D or Regulation A under the Securities Act of 1933, as amended, or pursuant to our registration statement on Form S-1 (File No. 333-282862) and, as of the date of this Offering Circular, we and our subsidiaries are authorized to issue up to $2.7 billion in additional notes through such offerings. See “Risk Factors—Risks Related to Our Indebtedness” and “Risk Factors—Risks Related to the Preferred Shares and this Offering—The Preferred Shares are junior and subordinated to our existing and future indebtedness.”

We recorded net income (loss) of $5.6 million and $(8.4) million for the three months ended March 31, 2025 and 2024, respectively, and net income (loss) of $(24.8) million, $(16.2) million, and $5.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. Through 2024, we incurred a significant amount of debt in order to accelerate the growth of our business by acquiring additional assets and establishing our direct drilling operations. As a result, our cash flows from operations alone would not have been sufficient to service required cash interest and principal payment obligations under our then-existing debt in 2023 and 2024. During the three months ended March 31, 2025, we continued to incur a significant amount of debt. Furthermore, as of December 31, 2024, we estimate that we will need to make approximately $749.3 million and $3,224.8 million in capital expenditures to develop all our proved and probable undeveloped reserves, respectively, and that we will need to raise approximately $658.9 million in additional capital through the end of 2028 to fund such development. Although we expect our cash flows from operations to be sufficient to service cash interest and principal payment obligations under our debt for the foreseeable future, there can be no assurance as to the sufficiency of our cash flows for that purpose, and we do not expect such cash flows alone to be adequate to fund both our debt service obligations and the development of our reserves. Therefore, we expect to require additional capital to fund our growth and may require additional liquidity to service our debt. As a result, we may use the proceeds of additional debt or securities offerings or this offering to make interest and principal payments on our existing debt. See “Risk Factors—Risks Related to Our Business and Operations—The acquisition and development of our properties, directly or through our third-party E&P operators, will require substantial capital, and we and our third-party E&P operators may be unable to obtain needed capital or financing on satisfactory terms or at all, including as a result of increases in the cost of capital resulting from Federal Reserve policies in the past few years and otherwise,” “Risk Factors—Risks Related to Our Indebtedness—Despite our current level of indebtedness, we will still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above,” “Risk Factors—Risks Related to Our Indebtedness—We may not be able to generate sufficient cash to service all of our existing and future indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful,” “Risk Factors—Risks Related to the Preferred Shares and this Offering—The Preferred Shares are junior and subordinated to our existing and future indebtedness,” “Risk Factors—Risks Related to the Preferred Shares and this Offering—We may invest or spend the proceeds of this offering in ways with which you may not agree,” “Use of Proceeds,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

		Public Offering Price (1)				Selling Agent Commissions (2)				Proceeds to Issuer (3)
Per Preferred Share		$	20.00			$	1.55			$	18.45
Total Maximum of Public Offering		$	75,000,000			$	5,812,500			$	$69,187,500

(1)	The public offering price does not include distributions for the Preferred Shares. Distributions on the Preferred Shares will accumulate from the original issuance date, which will occur at the closing of this offering.

(2)

We have engaged Digital Offering, LLC (“Digital Offering”) to act as lead selling agent (the “Selling Agent”) to offer the Preferred Shares to prospective investors in this offering on a “best efforts” basis, which means there is no guarantee that any minimum amount will be received by us in this offering. In addition, the Selling Agent may engage one or more sub-agents or selected dealers to assist in its marketing efforts (Digital Offering, together with such sub-agents and/or dealers collectively, the “Selling Agents”). Digital Offering is not purchasing the Preferred Shares offered by us and is not required to sell any specific number or dollar amount of Preferred Shares in this offering before the closing occurs. We will pay a cash commission of 7.75% to Digital Offering on sales of Preferred Shares, and Digital Offering shall be responsible for allocating a portion of such amount to the other Selling Agents; provided further that, subject to certain requirements, one of the Selling Agents, Dalmore Group, LLC (“Dalmore Group”) will be entitled to receive an allocation of 2.4% of the gross offering proceeds. Certain of our non-executive personnel, including Matthew Willer, our Managing Director, Capital Markets, are registered representatives of Dalmore Group, and will be paid a sales commission of 2.0% by Dalmore Group as compensation for sale of the Preferred Shares, which will be paid out of the allocation of commission provided to Dalmore Group by Digital Offering. See “Plan of Distribution” for details of compensation payable to the Selling Agents in connection with the offering.

(3)	Does not account for the expenses of the offering. See “Use of Proceeds” for estimated offering expenses payable by us in connection with the offering.

We may amend or supplement this Offering Circular from time to time by filing amendments or supplements as required. You should read this entire Offering Circular and any amendments or supplements carefully before you make an investment decision.

Investors will be required to deposit their funds to an escrow account held at Wilmington Trust, National Association (“Wilmington Trust”). Any such funds that Wilmington Trust receives shall be held in escrow until the closing of the offering takes place or such other time as mutually agreed between us and Digital Offering, and then used to complete securities purchases, or returned if this offering fails to close. We or our agents will instruct all investors to transfer funds by wire or ACH transfer directly to the escrow account established for this offering. The method for submitting subscriptions and a more detailed description of the offering process are included in “Plan of Distribution—Procedures for Subscribing” beginning on page 203 of this Offering Circular.

The Preferred Shares will not be listed on the NYSE American upon the initial qualification of this Offering Circular by the United States Securities and Exchange Commission (“SEC”). As a result, no sale may be made to you in this offering, if you are a natural person, if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov. See “Plan of Distribution—Investment Limitations if We Do Not Obtain a Listing on a National Securities Exchange” beginning on page 201 of this Offering Circular for more information on investor suitability requirements.

This is a continuous offering pursuant to Rule 251(d)(3)(i)(F) of Regulation A. We will commence this offering within two calendar days of the qualification of this offering statement by the SEC and will continue to offer the Preferred Shares for an indefinite period of time (which may exceed 30 days from the date of qualification) until the offering is terminated. This offering will terminate at the earliest of: (1) the date at which the maximum offering amount has been received by us, (2) one year from the date upon which the SEC qualifies the offering statement of which this Offering Circular forms a part, and (3) the date at which the offering is earlier terminated by us in our sole discretion. This offering is being conducted on a best-efforts basis. We intend to complete one closing for this offering and will determine the closing date at our discretion based on our review of subscriptions received and in consultation with Digital Offering. While we intend to close the offering as soon as possible following the qualification of this offering statement by the SEC, we will not close the offering until the Preferred Shares are approved for listing on NYSE American. Once we have determined to close the offering, we will inform investors of such closing date and the listing date via e-mail at least seven calendar days prior to the closing date, in accordance the terms of the subscription agreements executed by such investors. For more information regarding subscriptions and subscription agreements, see the section titled “Plan of Distribution—Procedures for Subscribing” beginning on page 203 of this Offering Circular. On the closing date, funds tendered by investors with their subscriptions will be made available to us and we will issue such investors their respective Preferred Shares.

 

 

INVESTING IN THE PREFERRED SHARES INVOLVES A HIGH DEGREE OF RISK, AND SHOULD ONLY BE CONSIDERED BY THOSE WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. BEFORE YOU INVEST IN PREFERRED SHARES, YOU SHOULD CAREFULLY READ THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 22 OF THIS OFFERING CIRCULAR.

THE SEC DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE SEC; HOWEVER, THE SEC HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

Sales of these securities will commence on approximately    , 2025.

This Offering Circular follows the disclosure format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.

 

TABLE OF CONTENTS

 

ABOUT THIS OFFERING CIRCULAR			ii
OFFERING CIRCULAR SUMMARY			1
RISK FACTORS			22
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			65
USE OF PROCEEDS			67
DISTRIBUTION POLICY			69
CAPITALIZATION			70
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			73
BUSINESS			117
MANAGEMENT			146
COMPENSATION DISCUSSION AND ANALYSIS			152
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS			164
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			167
DESCRIPTION OF CAPITAL AND PREFERRED SHARES			169
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF PREFERRED SHARES			183
ERISA CONSIDERATIONS			195
PLAN OF DISTRIBUTION			198
LEGAL MATTERS			207
EXPERTS			207
WHERE YOU CAN FIND ADDITIONAL INFORMATION			208
INDEX TO FINANCIAL STATEMENTS			F-1

You should read this Offering Circular carefully before you invest in the Preferred Shares. This Offering Circular and the exhibits to this Offering Circular contain the terms of the Preferred Shares we are offering. It is important for you to read and consider all of the information contained in this Offering Circular before making your investment decision.

You should rely only on the information contained in this Offering Circular, the offering statement, or any amendment or supplement to this Offering Circular we may authorize to be delivered or made available to you. Neither we nor any Selling Agent has authorized anyone to provide you with information or to make any representations other than those contained in this Offering Circular, the offering statement, or any amendment or supplement to this Offering Circular we may authorize to be delivered or made available to you. Neither we nor any Selling Agent take any responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This Offering Circular, the offering statement, or any amendment or supplement to this Offering Circular is an offer to sell only the Preferred Shares offered hereby or thereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Offering Circular, the offering statement, or any amendment or supplement to this Offering Circular is current only as of its date, regardless of the time of its delivery or of any sale of Preferred Shares. Our business, financial condition, results of operations, and prospects may have changed since such date.

Neither we nor any Selling Agent have undertaken any efforts to qualify this offering for offers to investors in any jurisdiction outside the United States. Investors must have a U.S. mailing address (other than a P.O. Box) and a U.S. social security number and/or a U.S. tax identification number to be eligible to participate in this offering. See “Plan of Distribution.”

 

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ABOUT THIS OFFERING CIRCULAR

Please carefully read the information in this Offering Circular and any accompanying offering circular supplements, which we refer to collectively herein as the “Offering Circular.” You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with different information. This Offering Circular may only be used in any jurisdictions where it is not unlawful to offer and sell these securities. You should not assume that the information contained in this Offering Circular is accurate as of any date later than the date hereof or such other dates as are stated herein or as of the respective dates of any documents or other information incorporated herein by reference.

The offering statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this Offering Circular. You should read this Offering Circular and the related exhibits filed with the SEC and any offering circular supplement, together with additional information contained in our annual reports, semi-annual and other reports and information statements that we will file periodically with the SEC.

The offering statement and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov, or on the Phoenix website, https://phoenixenergy.com/.

 

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CERTAIN DEFINED TERMS

As used in this Offering Circular, unless otherwise noted or the context otherwise requires, references to:

 

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“Adamantium” means Adamantium Capital LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Issuer.

 

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“Adamantium Bonds” means unsecured bonds offered and sold by Adamantium pursuant to an offering under Rule 506(c) of Regulation D under the Securities Act, the proceeds of which are loaned to the Issuer under the Adamantium Loan Agreement (as defined below) as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Adamantium Debt.”

 

•

“Adamantium Debt” means, collectively, indebtedness outstanding under the Adamantium Bonds, Adamantium Loan Agreement, and Adamantium Secured Note.

 

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“Adamantium Loan Agreement” means that certain Loan Agreement, dated as of September 14, 2023, by and among the Issuer and PhoenixOp, as borrowers, and Adamantium, as lender, as the same may be amended and supplemented from time to time.

 

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“Adamantium Secured Note” means that certain Secured Subordinated Promissory Note, dated as of November 1, 2024, by and between Adamantium and the noteholder named therein, as the same may be amended and supplemented from time to time.

 

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“Adamantium Securities” means, collectively, indebtedness outstanding under the Adamantium Bonds and Adamantium Secured Note.

 

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“Bbl” means one stock tank barrel, of 42 U.S. gallons liquid volume, used in this Offering Circular in reference to crude oil or other liquid hydrocarbons.

 

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“Boe” means barrel of oil equivalent.

 

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“Btu” means British thermal unit, which is the heat required to raise the temperature of one pound of liquid water by one degree Fahrenheit.

 

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“Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

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“Digital Offering” or the “lead selling agent” means Digital Offering LLC, a Delaware limited liability company and a member of FINRA.

 

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“DLLCA” means the Delaware Limited Liability Company Act.

 

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“E&P” means exploration and production.

 

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“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

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“Fortress” means Fortress Credit Corp., a Delaware corporation.

 

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“Fortress Credit Agreement” means that certain Amended and Restated Senior Secured Credit Agreement, dated as of August 12, 2024, by and among the Issuer, PhoenixOp, as borrower, each of the lenders from time to time party thereto, and Fortress, as administrative agent for the lenders, as the same may be amended or supplemented from time to time.

 

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“Indenture” means that certain indenture, dated on or around the date of this Offering Circular, by and between the Issuer and UMB Bank, N.A., as trustee.

 

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“Issuer” means Phoenix Energy One, LLC, a Delaware limited liability company.

 

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“LJC” means Lion of Judah Capital, LLC, a Delaware limited liability company and the holder of a majority of the voting membership interests in Phoenix Equity.

 

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“Mcf” means one thousand cubic feet.

 

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“MMBtu” means one million Btus.

 

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“NGL” means natural gas liquids.

 

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“Notes” means, collectively, the Registered Notes and the Reg D/Reg A Bonds.

 

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“NMAs” means net mineral acres.

 

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“NRAs” means net royalty acres.

 

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“NYSE American” means NYSE American LLC.

 

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“Phoenix Equity” means Phoenix Equity Holdings, LLC, a Delaware limited liability company and the sole member of the Issuer.

 

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“PhoenixOp” means Phoenix Operating LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Issuer.

 

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“Reg A Bonds” means unsecured bonds offered and sold to date by the Issuer pursuant to an offering under Regulation A under the Securities Act as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Reg D/Reg A Bonds”.

 

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“Reg D Bonds” means unsecured bonds offered and sold to date by the Issuer pursuant to offerings under Rule 506(b) or (c), as applicable, of Regulation D under the Securities Act as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Reg D/Reg A Bonds”.

 

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“Reg D/Reg A Bonds” means, collectively, the Reg D Bonds and the Reg A Bonds.

 

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“Registered Notes” means unsecured notes offered and sold by the Issuer on a continuous basis pursuant to its registration statement on Form S-1 (File No. 333-282862), including the related prospectus.

 

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“Registration Statement” means that certain registration statement on Form S-1 (File No. 333-282862), including the related prospectus, related to the Registered Notes.

 

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“SEC” means the U.S. Securities and Exchange Commission.

 

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“Securities Act” means the Securities Act of 1933, as amended.

 

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“Senior Reg D Bonds” means, collectively, the July 2022 506(c) Bonds, the 2020 506(b) Bonds, and the 2020 506(c) Bonds, each as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Reg D/Reg A Bonds.”

 

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“Senior Reg D/Reg A Bonds” means the Reg D/Reg A Bonds that are not Subordinated Reg D Bonds.

 

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“Subordinated Reg D Bonds” means, collectively, the August 2023 506(c) Bonds and the December 2022 506(c) Bonds, each as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Reg D/Reg A Bonds.”

 

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“Third ARLLCA” means the Third Amended and Restated Limited Liability Company Agreement of Phoenix Energy One, LLC to be entered into in connection with this offering.

 

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“we,” “us,” “our,” the “Company,” “Phoenix Energy,” and similar references refer to Phoenix Energy One, LLC, and, where appropriate, its subsidiaries.

For ease of reference, we have repeated definitions for certain of these terms in other portions of the body of this Offering Circular. All such definitions conform to the definitions set forth above.

 

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Certain monetary amounts, percentages, and other figures included in this Offering Circular have been subject to rounding adjustments. Percentage amounts included in this Offering Circular have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Offering Circular may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Offering Circular. Certain other amounts that appear in this Offering Circular may not sum due to rounding.

TRADEMARKS, TRADE NAMES, AND SERVICE MARKS

We own or have rights to trademarks, trade names, or service marks that we use in conjunction with the operation of our business. In addition, our name, logo, and website name and address are our service marks or trademarks. Solely for convenience, our trademarks, trade names, and service marks referred to in this Offering Circular appear without the ^®, ^TM, and ^SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted under applicable law, our rights or the rights of the applicable licensors to these trademarks, trade names, and service marks. This Offering Circular may also contain additional trademarks, trade names, and service marks of other companies. We do not intend our use or display of other companies’ trademarks, trade names, or service marks to imply, and such use or display should not be construed to imply, relationships with, or endorsement or sponsorship of us by, these other companies.

INDUSTRY DATA AND OPERATING METRICS

This Offering Circular contains estimates, projections, and information concerning our industry and our business. We are responsible for all of the disclosure in this Offering Circular, and while we believe that each of the publications, studies, and surveys used throughout this Offering Circular are prepared by reputable sources and are generally reliable, we have not independently verified market and industry data from third-party sources. Some data and statistical and other information are based on internal estimates and calculations that are derived from publicly available information, research we conducted, internal surveys, our management’s knowledge of our industry, and their assumptions based on such information and knowledge, which we believe to be reasonable. In each case, this information and data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such information, estimates, or projections. Industry publications and other reports we have obtained from independent parties may state that the data contained in these publications or other reports have been obtained in good faith or from sources considered to be reliable, but they do not guarantee the accuracy or completeness of such data. In addition, projections, assumptions, and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” These and other factors could cause our future performance to differ materially from the assumptions and estimates made by third parties and us.

Reserve engineering is a process of estimating underground accumulations of oil, natural gas, and NGL that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing, and production activities may justify revisions of estimates that were made previously. If significant, such revisions could impact our strategy. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas, and NGL that we expect our operators to ultimately recover.

WEBSITES

This Offering Circular includes references to various websites where investors may find additional information or further instructions or information regarding, among other things, this offering, including www.sec.gov, www.investor.gov., www.phoenixenergy.com/ipo and https://phoenixenergy.com/. For the

 

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avoidance of doubt, the contents of these website are not incorporated by reference in or otherwise a part of this Offering Circular, and you should not consider such information part of this Offering Circular or rely on any such information in making your decision whether to purchase the Preferred Shares.

NON-GAAP FINANCIAL MEASURES

In addition to measures determined in accordance with generally accepted accounting principles in the United States (“GAAP”), this Offering Circular contains non-GAAP financial measures, which either exclude or include amounts that are not excluded from or included in the most directly comparable measures calculated and presented in accordance with GAAP.

Specifically, we utilize the non-GAAP financial measures “EBITDA” and “PV-10” in this Offering Circular as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.

We calculate EBITDA by adding back to net income (loss) interest income, interest expense, depreciation, depletion, amortization, and accretion expense for the respective periods. Our management uses EBITDA to understand and compare our operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity, in each case, without regard to financing methods, capital structure, or historical cost basis. EBITDA is presented as supplemental disclosure as we believe it provides useful information to investors and others in understanding and evaluating our results, prospects, and liquidity period over period, including as compared to results of other companies. By providing this non-GAAP financial measure, together with a reconciliation to GAAP results, we believe we are enhancing investors’ understanding of our business and our operating performance, as well as assisting investors in evaluating how well we are executing strategic initiatives.

EBITDA has important limitations as an analytical tool because it excludes some but not all items that affect net income (loss), the most directly comparable GAAP measure. In particular, EBITDA excludes certain material costs, such as interest expense, and certain non-cash charges, such as depreciation, depletion, amortization, and accretion expense, that have been necessary elements of our expenses. Because EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Other companies may not publish this or similar metrics, and our computation of EBITDA may differ from computations of similarly titled measures of other companies. Therefore, our EBITDA should be considered in addition to, and not as a substitute for, in isolation from, or superior to, our financial information prepared in accordance with GAAP, and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Offering Circular.

We calculate PV-10 as the discounted future net cash flows attributable to our proved oil and natural gas reserves before income taxes, discounted at 10% annually. PV-10 differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure, because it is calculated on a pre-tax basis. We use PV-10 when assessing the potential return on investment related to our oil and natural gas properties. We believe that the presentation of PV-10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to our estimated net proved reserves prior to taking into account future income taxes, and is useful for evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize PV-10 as a basis for comparison of the relative size and value of our reserves to other companies without regard to the specific tax characteristics of such entities.

Because the Issuer is a limited liability company and has currently elected to be treated as a partnership for income tax purposes, the pro rata share of taxable income or loss is included in the individual income tax returns of members based on their percentage of ownership. Consequently, no provision for income taxes is made in our standardized measure of discounted future net cash flows, and so currently our PV-10 is identical to the

 

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standardized measure of discounted future net cash flows. Notwithstanding the foregoing, we believe that the presentation of PV-10 is useful to investors because it is a commonly utilized measure in our industry for assessing the value of reserves.

PV-10 is not a substitute for the standardized measure of discounted future net cash flows. Neither PV-10 nor the standardized measure of discounted future net cash flows purport to represent the fair value of our oil and natural gas reserves.

For a further discussion of our non-GAAP measures, including reconciliations to the most directly comparable GAAP measure, see “Offering Circular Summary—Summary Historical Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

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RISK FACTORS

Investing in the Preferred Shares involves significant risks. Before making an investment decision, you should carefully consider the specific risk factors set forth below, together with the other information included elsewhere in this Offering Circular. If any of the risks discussed in this Offering Circular occur, our business, prospects, liquidity, financial condition, and results of operations could be materially impaired, in which case we may be unable to pay the principal of, and interest on, the Preferred Shares and you could lose all or part of your investment. Some statements in this Offering Circular, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”

Risks Related to Our Business and Operations

The businesses of direct drilling and extraction of minerals and acquisition of mineral rights are highly competitive. If we are unable to successfully compete within these businesses through our direct drilling operations conducted by PhoenixOp, we may not be able to identify and purchase attractive assets and successfully operate our properties.

The key areas in which we face competition include:

 

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declines in oil and natural gas prices;

 

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acquisition of commercially viable mineral deposits offered for sale by other companies;

 

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access to capital for financing and operational purposes;

 

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hiring and retention of personnel to successfully operate drilling and extraction activities, and qualified third-party operators to assist in production activities;

 

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purchasing, leasing, hiring, chartering, or other procuring of equipment by us and our third-party operators; and

 

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employment of qualified and experienced management and other mineral professionals.

Competition in our markets is intense and depends, among other things, on the number of competitors in the market, their financial resources, their degree of geological, geophysical, engineering, and management expertise and capabilities, their pricing policies, their ability to develop properties on time and on budget, their ability to select, acquire, and develop reserves, and their ability to foster and maintain relationships with the relevant authorities.

Our competitors include entities with greater technical, physical, and financial resources than we have. Furthermore, companies and certain private equity firms not previously investing in minerals and their extraction may choose to acquire reserves to establish a firm supply or simply as an investment. If we are unable to successfully compete in operating our wells or acquisition of attractive assets, we may not be able to achieve or maintain profitable operations.

The mineral rights investment business involves high-risk activities with many uncertainties.

Our and our operating partners’ activities relating to our mineral rights investment business are subject to many risks, including unanticipated problems relating to finding mineral rights assets and additional costs and expenses that may exceed current estimates. There can be no assurance that the expenditures we make in the exploration phase will result in the discovery of economic deposits of minerals, or that any investment we make in initially profitable assets will continue to be productive enough for associated revenues to be commercially viable. In addition, drilling and producing operations on the assets we invest in may be curtailed, delayed, or canceled by the operators of our properties as a result of various factors, including:

 

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declines in oil and natural gas prices;

 

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infrastructure limitations, such as gas gathering and processing constraints;

 

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the high cost, shortages, or delays in procurement of equipment, materials, and/or services;

 

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unexpected operational events, adverse weather conditions and natural disasters, facility or equipment malfunctions, and equipment failures or accidents;

 

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inability to obtain satisfactory title to the assets we acquire and other title-related issues;

 

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pipe or cement failures and casing collapses;

 

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lost or damaged oilfield development and service tools;

 

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compliance with environmental, health, safety, and other governmental requirements;

 

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increases in severance taxes;

 

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regulations, restrictions, moratoria, and bans on hydraulic fracturing;

 

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unusual or unexpected geological formations, and pressure or irregularities in formations;

 

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loss of drilling fluid circulation;

 

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environmental hazards, such as oil, natural gas, or well fluids spills or releases, pipeline or tank ruptures, and discharges of toxic gases;

 

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fires, blowouts, craterings, and explosions;

 

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uncontrollable flows of oil, natural gas, or well fluids;

 

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pipeline capacity curtailments; and

 

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evolving cybersecurity risks, such as those involving unauthorized access, third-party provider defects and service failures, denial of service attacks, malicious software, data privacy breaches by employees, insiders, or others with authorized access, cyber or phishing attacks, ransomware, social engineering, physical breaches, or other actions.

In addition to causing curtailments, delays, and cancellations of drilling and producing operations, many of these events can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources, and equipment, pollution, environmental contamination, loss of wells, regulatory penalties, and third-party claims. The insurance we maintain against various losses and liabilities arising from our operations does not cover all operational risks involved in our investments. Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks. Losses could therefore occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our business activities, financial condition, and results of operations.

We, through our investment in PhoenixOp and future assignment of oil and gas properties to PhoenixOp, conduct direct drilling and extraction activities. Such activities pose additional risks to us.

We, through the operations of PhoenixOp, face numerous risks relating to our drilling activities, including:

 

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failing to place a well bore in the desired target producing zone;

 

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not staying in the desired drilling zone while drilling horizontally through the formation;

 

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failing to run casing the entire length of the well bore; and

 

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not being able to run tools and other equipment consistently through the horizontal well bore.

Risks we may face while completing our wells include, but are not limited to:

 

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not being able to fracture stimulate the planned number of stages;

 

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failing to run tools the entire length of the well bore during completion operations;

 

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not successfully cleaning out the well bore after completion of the final fracture stimulation stage;

 

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increased seismicity in areas near our completion activities;

 

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unintended interference of completion activities performed by us or by third parties with nearby operated or non-operated wells being drilled, completed, or producing; and

 

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failure of our optimized completion techniques to yield expected levels of production.

Further, many factors may occur that cause us to curtail, delay, or cancel scheduled drilling and completion projects, including, but not limited to:

 

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abnormal pressure or irregularities in geological formations;

 

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shortages of or delays in obtaining equipment or qualified personnel;

 

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shortages of or delays in obtaining components used in fracture stimulation processes, such as water and proppants;

 

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delays associated with suspending our operations to accommodate nearby drilling or completion operations being conducted by other operators;

 

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mechanical difficulties, fires, explosions, equipment failures, or accidents, including ruptures of pipelines or storage facilities, or train derailments;

 

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restrictions on the use of underground injection wells for disposing of wastewater from oil and gas activities;

 

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political events, public protests, civil disturbances, terrorist acts, or cyber-attacks;

 

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decreases in, or extended periods of low, crude oil and natural gas prices;

 

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title problems;

 

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environmental hazards, such as uncontrollable flows of crude oil, natural gas, brine, well fluids, hydraulic fracturing fluids, toxic gas, or other pollutants into the environment, including groundwater and shoreline contamination;

 

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adverse climatic conditions and natural disasters;

 

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spillage or mishandling of crude oil, natural gas, brine, well fluids, hydraulic fracturing fluids, toxic gas, or other pollutants by us or by third-party service providers;

 

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limitations in infrastructure, including transportation, processing, refining, and exportation capacity, or markets for crude oil and natural gas; and

 

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delays imposed by or resulting from compliance with regulatory requirements, including permitting.

As we expand our direct drilling and extraction activities the impact of these risks on our overall business will only grow more significant. See “—The businesses of direct drilling and extraction of minerals and acquisition of mineral rights are highly competitive. If we are unable to successfully compete within these businesses through our direct drilling operations conducted by PhoenixOp, we may not be able to identify and purchase attractive assets and successfully operate our properties,” “—Our business is sensitive to the price of oil and gas and sustained declines in prices may adversely affect our financial position, financial results, cash flows, access to capital, and ability to grow,” “—Properties we acquire for our direct drilling and extraction operations, currently conducted through PhoenixOp, may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with such properties, or obtain protection from sellers against such liabilities,” and “—Our development of successful operations relies extensively on our direct operations, through PhoenixOp and various third-party E&P operators, which could have a material adverse effect on our results of operations.”

 

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We are not insured against all risks associated with our business. We and PhoenixOp may elect to not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented or for other reasons. In addition, some risks such as those stemming from certain environmental hazards are generally not fully insurable.

Losses and liabilities arising from any of the above events could reduce the value of our capital contributions to PhoenixOp, increase our need to provide additional capital to PhoenixOp, and otherwise harm our financial position, which could adversely affect us and our ability to pay our obligations under the Notes or the Preferred Shares.

Our business is sensitive to the price of oil and gas and sustained declines in prices may adversely affect our financial position, financial results, cash flows, access to capital, and ability to grow.

We are in the business of both drilling and extracting oil and gas minerals directly through our operations conducted by PhoenixOp, and purchasing mineral rights and non-operated working interests in land in the United States, including the rights to drill for oil and gas. The prices we receive for our oil and natural gas production heavily influence our revenue, operating results, profitability, access to capital, future rate of growth, and carrying value of our properties. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand, as well as costs and terms of transport to downstream markets.

Historically, the commodities markets have been volatile, and these markets will likely continue to be volatile in the future. For example, recently, oil prices have been significantly volatile, going from $71.20 per barrel as of April 1, 2025 to a low of $57.13 per barrel as of May 5, 2025. A decline in oil and natural gas prices can have an adverse effect on the value of our interests in the land and revenue from our own direct drilling production, which will materially and adversely affect our ability to generate cash flows and, in turn, our ability to make interest and principal payments on the Notes and distribution payments on the Preferred Shares.

The prices received for oil and natural gas produced on our land, and the levels of the production, depend on numerous factors beyond our control and include the following:

 

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changes in global supply and demand for oil and natural gas;

 

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the actions of the Organization of the Petroleum Exporting Countries (“OPEC”);

 

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political and economic conditions and events in foreign oil, natural gas, and NGL producing countries, including elevated levels of inflation and interest rates, embargoes, and introduction of tariffs on oil and gas products;

 

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the level of global and domestic oil and natural gas E&P activity and the degree to which consolidation among our customers may affect spending on U.S. drilling and completions in the near-term;

 

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the level of global and domestic oil and natural gas inventories;

 

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the level of consumer product demand;

 

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inclement or hazardous weather conditions and natural disasters;

 

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the availability of storage for hydrocarbons and technological advances affecting energy consumption and energy supply;

 

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speculative trading in commodity markets, including expectations about future commodity prices;

 

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the proximity of our production operations to, and capacity, availability, and cost of, pipelines and other transportation and storage facilities, and other factors that result in differentials to benchmark prices;

 

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domestic, local, and foreign governmental regulation and taxes;

 

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fuel and energy conservation measures and technological advances affecting energy consumption;

 

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armed conflict, political instability, or civil unrest in oil and gas producing regions, including instability and conflicts in the Middle East, including conflicts involving Israel and Iran and the conflict between Russia and Ukraine, and the related potential effects on laws and regulations or the imposition of economic or trade sanctions;

 

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changes in regulatory and trade policy, such as tariffs, as well as the potential for general market volatility and political uncertainty;

 

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the occurrence or threat of epidemic or pandemic diseases, or any government response to such occurrence or threat; and

 

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the price and availability of alternative fuels.

These factors and the volatility of oil and natural gas prices make it extremely difficult to predict future crude oil, natural gas, and NGL price movements or to estimate the value of producing properties for acquisition and often cause disruption in the market for oil and natural gas producing properties, as buyers and sellers have difficulty agreeing on such value. Certain actions by OPEC and other oil producing nations in the first half of 2020, combined with the impact of the COVID-19 pandemic and a shortage in available storage for hydrocarbons in the United States, contributed to the historic low price for crude oil in April 2020. While the prices for crude oil have generally increased since then, such prices have historically remained volatile, which has adversely affected the prices at which production from our properties is sold, as well as the production activities of operators on our properties, and may continue to do so in the future. This, in turn, has and will materially affect the amount of royalty payments that we receive from our third-party E&P operators and our income from direct drilling operations. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation projects. In particular, our five-year development plan is based on assumed average oil and natural gas prices of $64.39 per barrel and $3.85 per MMBtu, respectively, and our outlook for 2025 is based on average benchmark commodity prices of $71.98 per barrel for crude oil and $3.94 per Mcf for natural gas, which are significantly higher than recent lows of $57.13 per barrel of for crude oil, as of May 5, 2025 and $2.71 per MMBtu for natural gas, as of April 25, 2025. Although prices have recovered since then, there can no be assurance that prices will not experience another significant decrease. This plan and outlook may need to be adjusted in the future as a result of any material sustained decrease in oil and natural gas prices as compared to our assumptions, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. In addition, in response to a sustained decrease in oil and natural gas prices, we may determine to adjust our overall business plan by adjusting capital expenditures, decreasing drilling operations, and/or reducing production plans, among other actions. Such actions and circumstances would impact our revenue, operating expenses, and liquidity. For example, we may be required to raise additional capital, above our current expectations, in order to fully realize our current or adjusted business plan.

Our revenues, operating results, profitability, and future rate of growth depend primarily on the prices of oil and, to a lesser extent, natural gas that we sell. Any substantial decline in the price of crude oil, natural gas, and NGL or prolonged period of low commodity prices will materially adversely affect our business, financial condition, results of operations, and cash flows. Further, a slowdown in the timing of oil or natural gas production, especially if in connection with a decline in prices, may reduce our ability to collect lease payments from leaseholders, which could limit our ability to make interest and principal payments on the Notes and distribution payments on the Preferred Shares. Prices also affect the amount of cash flow available for capital expenditures and our ability to raise additional capital. In addition, we may need to record asset carrying value write-downs if prices fall. A significant decline in the prices of natural gas or oil could adversely affect our financial position, financial results, cash flows, access to capital, and ability to grow.

 

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We have a limited operating history and have experienced periods of significant business growth in a short time, making it difficult for you to evaluate our business and prospects. If we are unable to manage our business and growth effectively, our business could be materially and adversely affected.

Since our formation in 2019, our business has grown considerably. Our limited operating history and the significant growth in operations and revenue we have experienced since then makes evaluation of our business and prospects difficult. Any growth that we experience in the future will require us to further expand our drilling and extraction activities and our acquisitions. There can be no assurance that growth in our revenue and operations will continue at a similar pace, or that we will be able to manage our growth effectively. Furthermore, the growth of our business places significant demands on our management, including managing increased numbers of personnel, properties, and business relations, such as our E&P operators. If we do not effectively manage the increased obligations brought by the growth of our operations, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, or satisfy delivery requirements, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

In addition, we may encounter risks and difficulties experienced by companies whose performance is dependent upon newly acquired assets, such as failing to integrate, or realizing the expected benefits of, such assets. As a result of the foregoing, we may be less successful in achieving consistent results and continue the growth of our business, as compared with companies that have longer operating histories and a more stable size of operations. In addition, we may be less equipped to identify and address risks and hazards in the conduct of our business than those companies that have longer operating histories.

The acquisition and development of our properties, directly or through our third-party E&P operators, will require substantial capital, and we and our third-party E&P operators may be unable to obtain needed capital or financing on satisfactory terms or at all, including as a result of increases in the cost of capital resulting from Federal Reserve policies in the past few years and otherwise.

The oil and gas industry is capital-intensive. We make, and will continue to make, substantial capital expenditures in connection with the acquisition of mineral and royalty interests. To date, we have financed capital expenditures primarily with funding from capital contributions, cash generated by operations, borrowings under credit facilities, and issuances of debt securities. Future sources of liquidity may also include other credit facilities, additional capital contributions, asset-backed securitizations, and continued issuances of debt or equity securities. For example, as part of our general financing and operational strategy, we may in the future undertake securitizations of certain assets or interests in assets through special purpose vehicles.

In the future, we may need capital in excess of the amounts we retain in our business, borrow under our existing credit facilities, or through issuances of debt or equity securities. There can be no assurance that we can increase the borrowing amount available under our existing credit facilities or continue to raise sufficient funds through our debt or other securities issuances.

Furthermore, we cannot assure you that we will be able to access other external capital on terms favorable to us or at all. For example, a significant decline in prices for oil and natural gas, rising interest rates, inflationary pressure, and broader economic turmoil may adversely impact our ability to secure financing in the capital markets on favorable terms. Additionally, our ability to secure financing or access the capital markets could be adversely affected if financial institutions and institutional lenders elect not to provide funding for fossil fuel energy companies in connection with the adoption of sustainable lending initiatives or are required to adopt policies that have the effect of reducing the funding available to the fossil fuel sector. If we are unable to fund our capital requirements, we may be unable to complete acquisitions, take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our results of operation and financial condition.

 

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Most of our third-party E&P operators are also dependent on the availability of external debt, equity financing sources, and operating cash flows to maintain their drilling programs. If those financing sources are not available to such third-party E&P operators on favorable terms or at all, then we expect the development of our properties would be adversely affected. If the development of our properties is adversely affected, then revenues from our mineral and royalty interests may decline.

Properties we acquire for our direct drilling and extraction operations, currently conducted through PhoenixOp, may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with such properties, or obtain protection from sellers against such liabilities.

Acquiring oil and natural gas properties requires us to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs, and potential liabilities, including, but not limited to, environmental liabilities. Such assessments are inexact and inherently uncertain. For these reasons, the properties we acquire may not produce as projected. In connection with these assessments, we perform a review of the subject properties, but such a review may not reveal all existing or potential problems. While conducting due diligence, we may not review every well, pipeline, or associated facility. We cannot necessarily observe structural and environmental problems, such as pipe corrosion or groundwater contamination, when a review is performed. We may be unable to obtain contractual indemnities from any seller for liabilities arising from or attributable to the period prior to our purchase of the property. As a result, we may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.

We may encounter obstacles to marketing our minerals, which could adversely impact our revenues and profits.

The marketability of our production will depend upon numerous factors beyond our control, including the availability and capacity of natural gas gathering systems, pipelines, and other transportation and processing facilities owned by third parties.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices, and the increased competitiveness of alternative energy sources could reduce demand for oil and natural gas. Additionally, the increased competitiveness of alternative energy sources (such as electric vehicles, wind, solar, geothermal, tidal, fuel cells, and biofuels) could reduce demand for oil and natural gas and, therefore, our revenues.

The marketing of our production can also be affected by U.S. federal and state regulation of oil and natural gas production and transportation. The availability of markets for our production is beyond our control. If market factors dramatically change, the impact on our revenues could be substantial and could adversely affect our ability to produce and market mineral deposits.

If we have difficulty selling the oil and gas we produce, our profits may decline, and we may not be able to purchase other assets, or expand our operations.

A limited number of purchasers and operators currently generate a significant portion of our revenue and/or accounts receivable, and we may not have contracts or agreements directly with all such operators.

A significant portion of our consolidated revenue is generated from product sales for the delivery of commodities that we extract and deliver to purchasers, and we currently deliver to a limited number of purchasers. For example, for the three months ended March 31, 2025 and 2024 and for the year ended December 31, 2024, one purchaser of our commodities made up 66%, 16% and 21% of our consolidated revenue, respectively. While we do not believe that the loss of any one purchaser would have a material impact on our revenue, to the extent there is a delay in transferring our commodity sales or entering into purchase contracts with another, new or replacement purchaser, there could be a delay in product sales or an adverse impact on our

 

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revenue during the respective period. A large portion of our current mineral rights and lease holdings are serviced by a limited number of third-party E&P operators and, as a result, we generate a significant portion of our revenue and accounts receivable from a limited number of third-party E&P operators. For the three months ended March 31, 2025, eleven third-party E&P operators made up 23% of our consolidated revenue, as compared to eight third-party E&P operators that made up 57% of our consolidated revenue for the three months ended March 31, 2024. For the year ended December 31, 2024, one third-party E&P operator made up 21% of our consolidated revenue, as compared to one third-party E&P operator that made up 11% of our consolidated revenue for the year ended December 31, 2023, and four third-party E&P operators that made up 16%, 16%, 15%, and 14% of our consolidated revenue for the year ended December 31, 2022. Similarly, as of December 31, 2024, we had concentrations in accounts receivable of 17%, 15%, and 13% with three third-party E&P operators, as compared to 26% and 14% with two third-party E&P operators as of December 31, 2023, and 34% and 10% with two third-party E&P operators as of December 31, 2022. A significant portion of our revenue and accounts receivable are generally derived from our diverse holdings of mineral rights and lease holdings and are generally not generated pursuant to agreements directly between us and the operators of the properties underlying our mineral rights and lease holdings. These interests generate revenue from the sale of crude oil and natural gas, which is paid monthly to us by various third-party oil and gas operators once any extracted crude oil and natural gas is delivered by such operators to purchasers. Those purchasers remit payment for production to the operators of the wells pursuant to sales agreements entered into among the purchasers and such operators, and the operators, in turn, remit payment to the owners in accordance with their ownership percentage in each well (or unit of wells).

As is typical in the oil and gas industry, the third-party oil and gas operators generally remit payment to the interest owners pursuant to statute or orders from the oil and gas commission of the state in which the particular well (or unit of wells) is located. For example, the majority interest holders of a unit would petition to appoint a particular operator from the oil and gas commission of the state in which the unit is located (e.g., the Wyoming Oil and Gas Commission, North Dakota Industrial Commission, Texas Railroad Commission (the “Texas RRC”), Montana Board of Oil and Gas Conservation, and Utah Division of Oil, Gas and Mining, among others). If the request is granted by the commission, the operator would become the designated operator for the unit and would be required to remit payments to the interest holders of the unit pursuant to permits or pooling orders from such commission. While our revenue and accounts receivable relating to our mineral rights and lease holdings are derived from a significant number of different units that are subject to different leases and pooling orders from various state oil and gas commissions, the incapacity or loss of one of the operators that generate a significant portion of our revenue and accounts receivable could negatively impact our revenue and accounts receivable and could result in a reduction or delay in revenue generated from the related mineral rights and lease holdings while a replacement operator is selected and designated. Further, although typical in the oil and gas industry, as we do not always have contracts or agreements directly with these operators, we do not always determine or control the rights, payments, discounts, or other terms related to leases or the extraction and sale of assets from the properties underlying our mineral rights and lease holdings.

Our development of successful operations relies extensively on our direct operations, through PhoenixOp and various third-party E&P operators, which could have a material adverse effect on our results of operations.

A significant portion of our assets consist of mineral and royalty interests. We utilize and will continue to utilize third-party E&P operators to perform the drilling and extraction operations on our assets to extract the natural resources we rely on to generate revenue. The success of our business operations depends on the timing of drilling activities and success of our direct operations and third-party E&P operators. If we or our third-party E&P operators are not successful in the development, exploitation, production, and exploration activities relating to our ownership interests, or are unable or unwilling to perform, our financial condition and results of operation would be materially adversely affected.

With respect to our investments in which we have a non-operated working interest, third-party E&P operators will make decisions in connection with their operations, which may not be in our best interests. We may

 

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have no ability to exercise influence over the operational decisions of our third-party E&P operators, including the setting of capital expenditure budgets and drilling locations and schedules. Dependence on our third-party E&P operators could prevent us from realizing target returns for those locations. The success and timing of development activities by our operators will depend on several factors that are largely outside of our control, including: the capital costs required for drilling activities by our third-party E&P operators, which could be significantly more than anticipated; the ability of our operators to access capital; prevailing mineral prices and other factors generally affecting the industry operating environment; the timing of capital expenditures; their expertise and financial resources; approval of other participants in drilling wells; selection of drilling technology; the availability of storage for hydrocarbons; and the rate of production of reserves, if any.

Furthermore, our E&P operators, including PhoenixOp, are dependent on various supplies and equipment, as well as qualified personnel, to carry out our extraction operations. Any shortage, unavailability, or increase in the cost of such supplies, personnel, equipment, and parts could have a material adverse effect on their ability to carry out operations and therefore limit or increase the cost of production and, ultimately, our profitability.

The challenges and risks faced by our third-party E&P operators and contractors may be similar to or greater than our own, including with respect to their ability to service their debt, remain in compliance with their debt instruments, and, if necessary, access additional capital. Commodity prices and/or other conditions have in the past caused, and may in the future cause, mineral operators to file for bankruptcy. The insolvency of third-party E&P operators or contractors of any of our properties, their failure to adequately perform, or their breach of applicable agreements could reduce our production and revenue or result in our liability to governmental authorities for compliance with environmental, safety, and other regulatory requirements or to such operators’ suppliers and vendors. Finally, with regards to any third-party E&P operator, they may have the right, if another non-operator fails to pay its share of costs because of its insolvency or otherwise, to require us to pay its proportionate share of the defaulting party’s share of costs.

We rely on our third-party E&P operators, third parties, and government databases for information regarding our assets and, to the extent that information is incorrect, incomplete, or lost, our financial and operational information and projections may be incorrect.

As an owner of mineral and royalty interests, we rely on the third-party E&P operators of our properties to notify us and state regulators of information regarding production on our properties in a timely and complete manner, as well as the accuracy of information obtained from third parties and government databases. We use this information in conjunction with our specialized software to evaluate operations and cash flows, as well as to predict expected production and possible future locations. To the extent we do not timely receive this information or the information is incomplete or incorrect, our financial and operational information may be incorrect and our ability to project potential growth may be materially adversely affected. Furthermore, to the extent we have to update any publicly disclosed results or projections made in reliance on this incorrect or incomplete information, investors could lose confidence in our reported financial information. If any of such third-parties’ databases or systems were to fail for any reason, including as a result of a cyber-attack, possible consequences include loss of communication links and inability to automatically process commercial transactions or engage in similar automated or computerized business activities. Any of the foregoing consequences could materially adversely affect our business.

Our estimated mineral reserves quantities and future production rates are based on many assumptions that may prove to be inaccurate and they have not been verified by an independent third-party reserve engineering report. Any material inaccuracies in the reserves estimates or the underlying assumptions will materially affect the quantities and present value of our reserves.

It is not possible to measure underground accumulation of crude oil, natural gas, or NGL in an exact way. Numerous uncertainties are inherent in estimating quantities of mineral reserves. The process of estimating mineral reserves is complex, requiring significant expertise, decisions, and assumptions in the evaluation of available

 

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geological, engineering, and economic data for each reservoir, including assumptions regarding future natural gas and oil prices, subsurface characterization, production levels, and operating and development costs. For example, our estimates of our reserves are based on the unweighted first-day-of-the-month arithmetic average commodity prices over the prior 12 months in accordance with SEC guidelines. Future prices received for production and costs may vary, perhaps significantly, from the prices and costs assumed for purposes of those estimates. Sustained lower prices will cause the 12-month unweighted arithmetic average of the first-day-of-the-month price for each of the 12 months preceding to decrease over time as the lower prices are reflected in the average price, which may result in the estimated quantities and present values of our reserves being reduced. To the extent that prices become depressed or decline materially from current levels, such conditions could render uneconomic a portion of our proved and probable reserves, and we may be required to write down our proved and probable reserves.

Additionally, we do not have an independent third-party reserve engineering report that verifies our estimates of mineral reserves quantities. We rely on our own internal team to estimate our mineral reserves, only employing third parties in limited capacities to assess the reasonableness and appropriateness of our approach and methodology to estimate our reserves. Lack of an independent third-party reserve engineering report means there is no independent complete analysis of the accuracy of mineral reserve estimates and their present value.

Furthermore, SEC rules require that, subject to limited exceptions, proved and probable undeveloped reserves may only be recorded if they relate to wells scheduled to be drilled within five years after the date of booking. This rule may limit our potential to record additional proved and probable undeveloped reserves as we pursue our drilling program through PhoenixOp. To the extent that prices become depressed or decline materially from current levels, such condition could render uneconomic a number of our identified drilling locations, and we may be required to write down our proved and probable undeveloped reserves if we do not drill those wells within the required five-year time frame or choose not to develop those wells at all.

As a result, estimated quantities of reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Over time, we may make material changes to our reserves estimates. Any significant variance in our assumptions and actual results could greatly affect our estimates of reserves, the economically recoverable quantities of minerals attributable to any particular group of properties, the classifications of reserves based on risk of non-recovery, and estimates of future net cash flows.

In addition, estimates of probable reserves, and the future cash flows related to such estimates, are inherently imprecise and are more uncertain than estimates of proved reserves, and the future cash flows related to such estimates, but have not been adjusted for risk due to that uncertainty. Because of such uncertainty, estimates of probable reserves, and the future cash flows related to such estimates, may not be comparable to estimates of proved reserves, and the future cash flows related to such estimates, and should not be summed arithmetically with estimates of proved reserves and the future cash flows related to such estimates. When producing an estimate of the amount of minerals that are recoverable from a particular reservoir, an estimated quantity of probable reserves is an estimate of those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. Estimates of probable reserves are also continually subject to revisions based on production history, results of additional exploration, and development, price changes, and other factors. When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir. Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves. See “Business—Our Oil and Natural Gas Properties—Evaluation and Review of Estimated Proved and Probable Reserves.”

 

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The development of our estimated proved and probable undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate.

Recovery of proved and probable undeveloped reserves requires significant capital expenditures and successful drilling operations. As of March 31, 2025, approximately 57% of our total estimated proved reserves and 100% of our total estimated probable reserves were undeveloped. Furthermore, as of March 31, 2025, we had 133.5 million Boe in total estimated probable undeveloped reserves, which is approximately 2.0 times our total proved reserves. Our reserves estimates assume that substantial capital expenditures will be made to develop non-producing reserves. As of December 31, 2024, we estimate that we will need to make approximately $749.3 million and $3,224.8 million in capital expenditures to develop all our proved and probable undeveloped reserves, respectively. Estimates of capital expenditures are subject to fluctuations in oil and natural gas prices, equipment availability, labor markets, and other factors that we may not foresee or control. As such, we cannot be sure that the estimated costs attributable to our reserves are accurate.

We anticipate that over the next several years our cash flows from operations alone will not be sufficient to finance the development of our estimated proved and probable undeveloped reserves over that period. As a result, we expect that we will need to raise additional capital to develop our reserves. However, we cannot be certain that additional financing will be available to us on acceptable terms, or at all. See “—The acquisition and development of our properties, directly or through our third-party E&P operators, will require substantial capital, and we and our third-party E&P operators may be unable to obtain needed capital or financing on satisfactory terms or at all, including as a result of increases in the cost of capital resulting from Federal Reserve policies in the past few years and otherwise.” Additionally, sustained or further declines in commodity prices may require use to revise the future net revenues of our estimated proved and probable undeveloped reserves and may result in some projects becoming uneconomical. Further, our drilling efforts may be delayed or unsuccessful and actual reserves may prove to be less than current reserves estimates, which could have a material adverse effect on our financial condition, future cash flows, and results of operations.

The ability to develop our reserves is subject to a number of uncertainties, which could defer our drilling more than five years from the date undeveloped reserves were first assigned to a drilling location. Alternatively, our estimated reserves may not be ultimately developed or produced. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. If we choose not to spend the capital to develop these reserves, or if we are not otherwise able to successfully develop these reserves, we will be required to remove the associated volumes from our reported proved reserves. In addition, because undeveloped reserves may be booked only if they relate to wells scheduled to be drilled within five years of the date of booking, we may be required to remove any undeveloped reserves that are not developed within this five-year time frame or to reclassify the category of the applicable reserves. A removal or reclassification of reserves could reduce the quantity and present value of our natural gas and oil reserves, which would adversely affect our business and financial condition.

We may experience delays in the payment of royalties and be unable to replace third-party E&P operators that do not make required royalty payments, and we may not be able to terminate our leases with defaulting lessees if any of such third-party E&P operators on those leases declare bankruptcy.

We may experience delays in receiving royalty payments from our third-party E&P operators, including as a result of delayed division orders received by our third-party E&P operators. A failure on the part of our third-party E&P operators to make royalty payments typically gives us the right to terminate the lease, repossess the property, and enforce payment obligations under the lease. If we repossessed any of our properties, we would seek a replacement E&P operator. However, we might not be able to find a replacement E&P operator and, if we did, we might not be able to enter into a new lease on favorable terms within a reasonable period of time. In addition, the outgoing third-party E&P operator could be subject to a proceeding under Title 11 of the United States Code (the “Bankruptcy Code”), in which case our right to enforce or terminate the lease for any defaults, including non-payment, may be substantially delayed or otherwise impaired. In general, in a proceeding under the

 

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Bankruptcy Code, the bankrupt third-party E&P operator would have a substantial period of time to decide whether to ultimately reject or assume the lease, which could prevent the execution of a new lease or the assignment of the existing lease to another E&P operator. For example, certain of our third-party E&P operators historically have undergone restructurings under the Bankruptcy Code and any future restructurings of our third-party E&P operators may impact their future operations and ability to make royalty payments to us. If the third-party E&P operator rejected the lease, our ability to collect amounts owed would be substantially delayed, and our ultimate recovery may be only a fraction of the amount owed or nothing. In addition, if we are able to enter into a new lease with a new E&P operator, the replacement E&P operator may not achieve the same levels of production or sell oil or natural gas at the same price as the third-party E&P operator we replaced.

Our PV-10 will not necessarily be the same as the current market value of our estimated proved reserves.

You should not assume that our PV-10 is the current market value of our estimated proved reserves. We currently base the estimated discounted future net revenues from our proved reserves on the 12-month unweighted arithmetic average of the first-day-of-the-month price for the preceding 12 months. Actual future net revenues from our reserves will be affected by factors such as:

 

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actual prices we receive for natural gas and oil;

 

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actual cost of development and production expenditures;

 

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the amount and timing of actual production;

 

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transportation and processing; and

 

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changes in governmental regulations or taxation.

The timing of both our production and our incurrence of expenses in connection with the development and production of our properties will affect the timing and amount of actual future net revenues from proved reserves and, thus, their actual present value. In addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with our business or the natural gas and oil industry in general. Actual future prices and costs may differ materially from those used in the present value estimate.

Estimated reserves do not represent or measure the fair value of the respective property or asset and we may sell or divest an asset for much less than the amount of estimated reserves.

Estimated proved reserves and estimated probable reserves do not represent or measure the fair value of the respective properties or the fair market value at which a property or properties could be sold. In the event of any such sale, proceeds to us may be significantly less than the value of the estimated reserves. The development of our estimated proved and probable undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate. Estimates of probable reserves, and the future cash flows related to such estimates, are inherently imprecise and are more uncertain than estimates of proved reserves and the future cash flows related to such estimates but have not been adjusted for risk due to such uncertainty.

Our future success depends on our ability to replace reserves.

Because the rate of production from oil and natural gas properties generally declines as reserves are depleted, our future success depends upon our ability to economically find or acquire and produce additional oil and natural gas reserves. Except to the extent that we acquire additional properties containing proved reserves, conduct successful exploration and development activities, or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline as our reserves are produced. Future oil and natural gas production, therefore, is highly dependent upon our level of success in acquiring or finding additional reserves that are economically recoverable. We cannot assure you that we will be able to find

 

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or acquire and develop additional reserves at an acceptable cost. We may acquire significant amounts of unproved property to further our development efforts. Development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. We seek to acquire both proved and producing properties as well as undeveloped acreage that we believe will enhance growth potential and increase our earnings over time. However, we cannot assure you that all of these properties will contain economically viable reserves or that we will not abandon our initial investments. Additionally, we cannot assure you that unproved reserves or undeveloped acreage that we acquire will be profitably developed, that new wells drilled on our properties will be productive, or that we will recover all or any portion of our investments in our properties and reserves.

We rely on our software system to identify attractive assets with oil and gas reserves and there can be no assurance that we will be able to continue to scale this software or that such software will be accurate in identifying assets.

We have built and operated our software system on a relatively limited scale. While we believe that our development and testing to date has proven the concept of our software, there can be no assurance that, as we commence larger-scale operations, we will not incur unexpected costs or hurdles that might restrict the desired scale of our intended operations or negatively impact our business prospects, financial condition, and results of operation. In addition, due to the limited and changing scale of use, there can be no assurance that the software will be accurate on an ongoing or continuous basis. If our software is unable to scale or to adopt to the changing nature of our operations, or is inaccurate, our ability to successfully invest in commercially viable mineral deposits and PhoenixOp’s ability to successfully extract minerals from assets transferred to it by us could be significantly impacted and our business and operating results may suffer.

We may be unable to realize all of the anticipated benefits from our acquisitions or successfully integrate future acquisitions of mineral rights into our business.

Our ability to achieve the anticipated benefits of our completed and future acquisitions of mineral rights will depend in part upon whether we can integrate the acquired assets into our existing business in an efficient and effective manner. We may not be able to accomplish this integration process successfully. The successful acquisition of producing properties requires an assessment of several factors, including:

 

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recoverable reserves;

 

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future oil and natural gas prices and their appropriate differentials;

 

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availability and cost of transportation of production to markets;

 

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availability and cost of drilling equipment and of skilled personnel for our third-party operators;

 

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development and operating costs of PhoenixOp and our third-party E&P operators, including potential environmental and other liabilities; and

 

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regulatory, permitting, and similar matters.

The accuracy of these assessments is inherently uncertain, and we may not be able to identify attractive acquisition opportunities. In connection with these assessments, in conjunction with the use of our specialized software, we perform a review of the subject properties that we believe to be generally consistent with industry practices, given the nature of our interests. Our review will not reveal all existing or potential problems, nor will it permit us to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of such problems. Even if we identify attractive acquisition opportunities, we may not be able to complete the acquisition or do so on commercially acceptable terms. We depend on acquisitions to grow our reserves, production, and cash flows.

 

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There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. Additionally, acquisition opportunities vary over time. Our ability to complete acquisitions is dependent upon, among other things, our ability to obtain the necessary financing and, in some cases, regulatory approvals. Further, these acquisitions may be in geographic regions in which we do not currently hold assets, which could result in unforeseen difficulties. In addition, if we acquire interests in new geographic regions, we may be subject to additional and unfamiliar legal and regulatory requirements. Moreover, the success of any completed acquisition will depend on our ability to effectively integrate the acquired business into our existing business. The process of integrating acquired businesses may involve unforeseen difficulties, including delays, and may require a disproportionate amount of our managerial and financial resources.

No assurance can be given that we will be able to identify suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms, or successfully acquire identified targets. Our failure to successfully integrate the acquired assets into our existing operations, achieve cost savings, or minimize any unforeseen difficulties could materially and adversely affect our financial condition, results of operations, and cash flows. The inability to effectively manage these acquisitions could reduce our focus on subsequent acquisitions and current operations, which, in turn, could negatively impact our growth, results of operations, and cash flows.

Our E&P operators’ identified potential drilling locations, which are scheduled out over many years, are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

Proved and probable undeveloped drilling locations represent a significant part of our growth strategy. However, we do not fully control the development of these locations that we do not directly operate. The ability of our E&P operators to drill and develop identified potential drilling locations depends on a number of uncertainties, including the availability of capital, construction of and limitations on access to infrastructure, the generation of additional seismic or geological information, seasonal conditions and inclement weather, regulatory changes and approvals, oil and gas prices, costs, negotiation of agreements with third parties, drilling results, lease expirations, and the availability of water. Further, our E&P operators’ identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional interpretation. The use of technologies and the study of producing fields in the same area will not enable our E&P operators, or us, to know conclusively prior to drilling whether mineral reserves will be present or, if present, whether such resources will be present in sufficient quantities to be economically viable. Even if sufficient amounts of such resources exist, our E&P operators may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If our E&P operators drill additional wells that they identify as dry holes in current and future drilling locations, their drilling success rate may decline and materially harm their business and ours.

There is no guarantee that the conclusions our E&P operators draw from available data from the wells on our acreage, more fully explored locations, or producing fields will be applicable to their drilling locations. Further, initial production rates reported by our or other E&P operators in the areas in which our reserves are located may not be indicative of future or long-term production rates. Additionally, actual production from wells may be less than expected. For example, several third-party E&P operators have previously announced that newer wells drilled close in proximity to already producing wells have produced less oil and gas than forecast. Because of these uncertainties, we do not know if the potential drilling locations identified will ever be drilled or if our third-party E&P operators will be able to produce oil and/or gas from these or any other potential drilling locations. As such, the actual drilling activities of our E&P operators may materially differ from those presently identified, which could adversely affect our business, results of operations, and cash flows.

Finally, the potential drilling locations we have identified are based on the geologic and other data available to us and our interpretation of such data through our specialized software. As a result, our third-party E&P

 

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operators may have reached different conclusions about the potential drilling locations on our properties, and our third-party E&P operators control the ultimate decision as to where and when a well is drilled.

Acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. Our E&P operators’ failure to drill sufficient wells to hold acreage may result in the deferral of prospective drilling opportunities.

Leases on crude oil and natural gas properties typically have a term of three to five years, after which they expire unless, prior to expiration, production is established within the spacing units covering the undeveloped acres. In addition, even if production or drilling is established during such primary term, if production or drilling ceases on the leased property, the lease typically terminates, subject to certain exceptions.

Any reduction in our E&P operators’ drilling programs, either through a reduction in capital expenditures or the unavailability of drilling rigs, could result in the expiration of existing leases. If the lease governing any of our mineral interests expires or terminates, all mineral rights revert back to us, and we will have to seek new lessees to explore and develop such mineral interests.

We have limited control over the activities on properties that we do not operate.

Some of the properties in which we have an interest are operated by other companies and involve third-party working interest owners. As a result, we have limited ability to influence or control the operation or future development of such properties, including compliance with environmental, safety, and other regulations, or the amount of capital expenditures that we will be required to fund with respect to such properties. Moreover, we are dependent on the other working interest owners of such projects to fund their contractual share of the capital expenditures of such projects. In addition, a third-party E&P operator could decide to shut-in or curtail production from wells, or plug and abandon marginal wells, on properties owned by that operator during periods of decreases in oil and gas prices. These limitations and our dependence on the third-party E&P operators and third-party working interest owners for these projects could cause us to incur unexpected future costs, lower production, and materially and adversely affect our financial condition, results of operations, and cash flows.

We have completed numerous acquisitions of mineral and royalty interests for which separate financial information is not required or provided.

We have completed numerous acquisitions of mineral and royalty interests that are not “significant” under Rule 3-05 of Regulation S-X (“Rule 3-05”). Therefore, we are not required to, and have elected not to, provide separate historical financial information in our public filings relating to those acquisitions. While these acquisitions are not individually or collectively significant for purposes of Rule 3-05, they have or will have an impact on our financial results and their aggregated effect on our business and results of operations may be material.

The substantial majority of the wells in which we have a mineral or royalty interest and all the wells we directly operate are located in the Williston Basin, making us vulnerable to risks associated with concentration of our assets in a limited geographic area.

The substantial majority of the wells in which we have a mineral or royalty interest and all the wells we directly operate are geographically concentrated in the Williston Basin. As a result, we may be disproportionately exposed to various factors, including, among others:

 

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the impact of regional supply and demand factors;

 

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delays or interruptions of production from wells in such areas caused by governmental regulation, including changes to field wide rules;

 

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processing or transportation capacity constraints;

 

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market limitations;

 

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•

availability of equipment and personnel;

 

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water shortages or other drought-related conditions; or

 

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interruption of the processing or transportation of natural gas.

This concentration in a limited geographic area also increases our exposure to changes in local laws and regulations, certain lease stipulations designed to protect wildlife, and unexpected events that may occur in the region, such as natural disasters, seismic events, industrial accidents, or labor difficulties. Any one of these factors has the potential to cause producing wells to be shut-in, delay operations, decrease cash flows, increase operating and capital costs, and prevent development of lease inventory before expirations. Any of the risks described above could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Cybersecurity attacks on our technological systems, or those of our third-party vendors, could significantly disrupt our business operations and subject us to liability.

Our business, like other companies in the oil and gas industry, has become increasingly dependent upon digital technologies. We utilize digital technologies to, among other things, process and record financial and operating data, communicate with our business partners, analyze mineral deposits information, and estimate quantities of mineral reserves. Strategic targets, such as energy-related assets, may be at greater risk of future terrorist or cyber-attacks than other targets in the United States. Deliberate attacks on, or security breaches in, our systems or infrastructure, the systems or infrastructure of third parties, or cloud-based applications could lead to corruption or loss of our proprietary data and potentially sensitive data, delays in production or delivery, difficulty in completing and settling transactions, challenges in maintaining our books and records, environmental damage, communication interruptions, other operational disruptions, and third-party liability.

There is no guarantee that our security measures will provide absolute security. We may not be able to anticipate, detect, or prevent cyberattacks, particularly because the methodologies used by attackers change frequently or may not be recognized until launched, and because attackers are increasingly using techniques designed to circumvent controls and avoid detection. We and our third-party service providers may therefore be vulnerable to security events that are beyond our control, and we may be the target of cyber-attacks, as well as physical attacks, which could result in the unauthorized access to our information systems or data, the data of our third-party E&P operators, and our employees, or significant disruption to our business. These attacks could adversely impact our business operations, our revenue and profits, our ability to comply with legal, contractual, and regulatory requirements, our reputation and goodwill, and could result in legal risk, enforcement actions, and litigation. As cyberattacks continue to evolve, we may be required to expend significant additional resources to respond to cyberattacks, to continue to modify or enhance our protective measures, or to investigate and remediate any information systems and related infrastructure security vulnerabilities. Additionally, the continuing and evolving threat of cybersecurity attacks has resulted in evolving legal and compliance matters, including increased regulatory focus on prevention, which could require us to expend significant additional resources to meet such requirements.

Security incidents can also occur as a result of non-technical issues, such as physical theft. More recently, advancements in artificial intelligence (“AI”) may pose serious risks for many of the traditional tools used to identify individuals, including voice recognition (whether by machine or the human ear), facial recognition, or screening questions to confirm identities. In addition, generative AI systems may also be used by malicious actors to create more sophisticated cyberattacks (i.e., more realistic phishing or other attacks). The advancements in AI could lead to an increase in the frequency of identity fraud or cyberattacks (whether successful or unsuccessful), which could cause us or our third-party E&P operators to incur increasing costs, including costs associated with additional personnel, protection technologies and policies and procedures, and third-party experts and consultants. If any of these security breaches were to occur, we could suffer disruptions to our operations and other aspects of our business.

 

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Our inability to retain or obtain key personnel could directly affect our efficiency and profitability.

Our future success depends on retaining the services of our planned management team. Our executive officers possess a unique and comprehensive knowledge of our industry and related matters that are vital to our success within the industry. The knowledge, leadership, and technical expertise of these individuals would be difficult to replace. The loss of one or more of our officers could have a material adverse effect on our operating and financial performance, including our ability to develop and execute our long-term business strategy.

We may incur losses as a result of title defects in the properties that we acquire.

It is our practice in acquiring oil and natural gas leases or interests not to incur the expense of retaining lawyers to examine the title to the mineral interest at the time of acquisition. Rather, we rely upon the judgment of lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental office before attempting to acquire a lease or other interest in a specific mineral interest. The existence of a material title deficiency can render a lease or other interest worthless and can adversely affect our results of operations and financial condition. The failure of title on a lease, in a unit, or in any other mineral interest may not be discovered until after a well is drilled, in which case we may lose the lease and the right to produce all or a portion of the minerals under the property.

If the third-party E&P operators of our properties suspend our right to receive royalty payments due to title or other issues, our business, financial condition, results of operations, and cash flows may be adversely affected.

We depend in part on acquisitions to grow our reserves, production, and cash generated from operations. In connection with these acquisitions, record title to mineral and royalty interests are conveyed to us by asset assignment, and we become the record owner of these interests. Upon such a change in ownership of mineral interests, and at regular intervals pursuant to routine audit procedures at each of our third-party E&P operators at its discretion, the third-party E&P operator of the underlying property has the right to investigate and verify the title and ownership of mineral and royalty interests with respect to the properties it operates. If any title or ownership issues are not resolved to its reasonable satisfaction in accordance with customary industry standards, the third-party E&P operator may suspend payment of the related royalty. If a third-party E&P operator of our properties is not satisfied with the documentation we provide to validate our ownership, such third-party E&P operator may suspend our royalty or mineral interest right payment until such issues are resolved, at which time we would receive in full payments that would have been made during the suspension, without interest. Certain of our third-party E&P operators impose significant documentation requirements for title transfer and may suspend royalty payments for significant periods of time. During the time that a third-party E&P operator puts our assets in pay suspense, we would not receive the applicable mineral or royalty payment owed to us from sales of the underlying oil or natural gas related to such mineral or royalty interest. Placement of a significant amount of our royalty interests in suspense may have a material advance effect on our business and results of operations.

Our decommissioning costs are unknown and may be substantial and may force us to divert resources from our other operations.

We may become responsible for costs associated with abandoning and reclaiming wells, facilities, and pipelines (“decommissioning costs”) we use for production of oil, natural gas, and NGL reserves. We accrue a liability for decommissioning costs associated with our wells but have not established any cash reserve account for these potential costs in respect of any of our properties. If decommissioning is required before economic depletion of our properties or if our estimates of the costs of decommissioning exceed the value of the reserves remaining at any particular time to cover such decommissioning costs, we may have to draw on funds from other sources to satisfy such costs. The use of other funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.

 

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Limitation or restrictions on our ability to obtain water for our direct drilling and hydraulic fracturing processes may have an adverse effect on our operating results.

Water is an essential component of shale oil and natural gas development during both the drilling and hydraulic fracturing processes. Our access to water to be used in these processes may be adversely affected due to reasons such as periods of extended drought, private, third-party competition for water in localized areas, or the implementation of local or state governmental programs to monitor or restrict the beneficial use of water subject to their jurisdiction for hydraulic fracturing to assure adequate local water supplies. In addition, treatment and disposal of water is becoming more highly regulated and restricted. Thus, our costs for obtaining and disposing of water could increase significantly. In addition, the use, treatment, and disposal of water has become a focus of certain investors and other stakeholders who may seek to engage with us on this and other environmental matters, which may result in activism, negative reputational impacts, increased costs, or other adverse effects on our business, results of operations, and financial condition. The inability to locate or contractually acquire and sustain the receipt of sufficient amounts of water could adversely impact operations of our E&P operators and have a corresponding adverse effect on our business, results of operations, and financial condition.

Weather conditions, which could become more frequent or severe due to climate change, could adversely affect our ability to conduct drilling, completion, and production activities in the areas where we operate.

Exploration and development activities and equipment of PhoenixOp and our third-party operators operating on our lands can be adversely affected by severe weather, such as well freeze-offs, which may cause a loss of production from temporary cessation of activity or lost or damaged equipment. Our and our third-party operators’ planning for normal climatic variation, insurance programs, and emergency recovery plans may inadequately mitigate the effects of such weather conditions, and not all such effects can be predicted, eliminated, or insured against. In addition, demand for oil and gas are, to a degree, dependent on weather and climate, which impact the price we receive for the commodities we produce. These constraints could delay or temporarily halt our operations and materially increase our operating and capital costs, which could have a material adverse effect on our business, financial condition, and results of operations.

Our hedging activities could result in financial losses and reduce earnings.

To achieve a more predictable cash flow and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we currently have entered, and may in the future enter, into derivative contracts for a portion of our future oil and natural gas production, including fixed price swaps, collars, and basis swaps. We have not designated and do not plan to designate any of our derivative contracts as hedges for accounting purposes and, as a result, record all derivative contracts on our balance sheet at fair value with changes in fair value recognized in current period earnings. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative contracts. Derivative contracts also expose us to the risk of financial loss in some circumstances, including when:

 

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production is less than expected;

 

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the counterparty to the derivative contract defaults on its contract obligation; or

 

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the actual differential between the underlying price in the derivative contract or actual prices received are materially different from those expected.

In addition, these types of derivative contracts can limit the benefit we would receive from increases in the prices for oil and natural gas.

 

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Risks Related to Legal, Regulatory, and Environmental Matters

We are subject to significant governmental regulations, and governmental authorities can delay or deny permits and approvals or change legal requirements governing our operations, which could restrict our operations, increase costs of conducting our business, and delay our implementation of, or cause us to change, our business strategy.

The current and future operations of our business and that of the third-party E&P operators on our land are and will be governed by complex and stringent federal, state, local, and other laws and regulations, including:

 

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laws and regulations governing mineral concession acquisition, prospecting, development, mining, production, transportation, marketing, and sales;

 

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laws and regulations related to exports, taxes, and fees;

 

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labor standards and regulations related to occupational health and mine safety;

 

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environmental laws and regulations related to air emissions, waste disposal, remediation of contaminated sites, water and wastewater discharges, management and exposure to hazardous substances, land use, and protection of natural resources; and

 

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other matters.

Federal, state, and local agencies may assert overlapping authority to regulate in these areas. In addition, certain of these laws and regulations may apply retroactively and may impose strict or joint and several liability on us for events or conditions over which we and our predecessors had no control, without regard to fault, legality of the original activities, or ownership or control by third parties.

Companies engaged in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations, and permits. Costs of compliance may increase, and operational delays or restrictions may occur, as existing laws and regulations are revised or reinterpreted, or as new laws and regulations become applicable to our operations. Government authorities and other organizations continue to study health, safety, and environmental aspects of mineral operations, including those related to air, soil, and water quality, ground movement or seismicity, and natural resources. Government authorities have also adopted or proposed new or more stringent requirements for permitting, well construction, and public disclosure or environmental review of, or restrictions on, mineral operations. Such requirements or associated litigation could result in potentially significant added costs to comply, delay, or curtail our exploration, development, disposal, or production activities, and preclude us from carrying out our exploration program, which could have a material adverse effect on our expected production, other operations, and financial condition.

To operate in compliance with these laws and regulations, we and our third-party E&P operators must obtain and maintain permits, approvals, and certificates from federal, state, and local government authorities for a variety of activities. These permits are generally subject to protest, appeal, or litigation, which could in certain cases delay or halt projects, production of wells, and other operations. Failure to comply with laws and regulations, including obtaining and maintaining permits, approvals, and certificates, may result in enforcement actions, including the forfeiture of claims, or orders issued by regulatory or judicial authorities requiring operations to cease or be curtailed, the assessment of administrative, civil, and criminal fines and penalties and liability for noncompliance, costs of corrective action, cleanup or restoration, including capital expenditures, installation of additional equipment, or remedial actions, compensation for personal injury, property damage or other losses, and the imposition of injunctive or declaratory relief restricting or limiting our operations.

Our operations may also be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Such restrictions may limit our ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies, and qualified personnel, which may

 

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lead to periodic shortages when drilling is allowed. Permanent restrictions imposed to protect threatened or endangered species or their habitat could prohibit drilling in certain areas or require the implementation of expensive mitigation measures.

The development and enactment of climate change legislation and regulation regarding emissions of greenhouse gases (“GHGs”) could adversely affect our operations, including the mineral industry and the demand for the oil and natural gas that we produce.

The energy industry is affected from time to time in varying degrees by political developments and a wide range of federal, tribal, state, and local statutes, rules, orders, and regulations that may, in turn, adversely affect the operations and costs of the companies engaged in the energy industry. Laws, regulations and existing policies related to climate change and to GHG emissions have been rapidly evolving and are increasingly difficult to predict, particularly in light of recent announcements and actions by the U.S. government to reconsider air-related regulations and policies.

For instance, in response to the U.S. Environmental Protection Agency (the “EPA”) endangerment finding on GHGs, the EPA has adopted regulations under existing provisions of the Clean Air Act of 1970 (as amended, the “CAA”) that, among other things, require preconstruction and operating permits for GHG emissions from certain large stationary sources that already emit conventional pollutants above a certain threshold. In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore and offshore oil and gas production sources in the United States on an annual basis, which may include operations on our properties. However, on June 11, 2025, EPA proposed a rule to repeal all GHG emissions standards for the power sector under the CAA and to repeal amendments to the 2024 Mercury and Air Toxics Standards.

Further, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act of 2022 (the “IRA 2022”) includes billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure, and carbon capture and sequestration. Additionally, the IRA 2022 includes a charge for methane emissions from specific types of facilities that emit 25,000 metric tons of carbon dioxide equivalent or more per year, and although the IRA 2022 generally provides for a conditional exemption under certain circumstances, the change applies to emissions that exceed an established emissions threshold for each type of covered facility. On November 12, 2024, the EPA finalized the methane emissions charge rule, implementing the IRA 2022. To the extent the methane emissions charge rule is implemented as originally promulgated, it could increase the operating costs of our E&P operators and adversely affect our business. On March 14, 2025, the Trump Administration signed legislation disapproving this rule, and therefore, the future of this rule remains unclear.

Additional GHG regulation could also result from the agreement crafted during the United Nations climate change conference in Paris, France, in December 2015 (the “Paris Agreement”). Under the Paris Agreement, the United States committed to reducing its GHG emissions by 26-28% by the year 2025 as compared with 2005 levels; however, in January 2025, President Trump issued an executive order directing the United States’ withdrawal from the Paris Agreement. As a result, the effect of the Paris Agreement on our business is uncertain. Moreover, in November 2021, at the U.N. Framework Convention on Climate Change 26^th Conference of the Parties, the United States and the European Union advanced a Global Methane Pledge to reduce global methane emissions at least 30% from 2020 levels by 2030, which over 100 countries have signed. While Congress has from time to time considered legislation to reduce emissions of GHGs, comprehensive legislation aimed at reducing GHG emissions has not yet been adopted at the federal level.

New or existing laws and regulations relating to climate change, including, state cap-and-trade programs, may affect our business operations through imposing reporting obligations on, or limiting emissions of GHGs from, operators’ equipment and operations could require them to incur costs to reduce emissions of GHGs associated with their operations. In addition, substantial limitations on GHG emissions could adversely affect demand for the oil and gas produced from our properties. Restrictions on emissions of methane or carbon dioxide,

 

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such as restrictions on venting and flaring of natural gas, that may be imposed in various states, as well as state and local climate change initiatives, such as increased energy efficiency standards or mandates for renewable energy sources, could adversely affect the oil and gas industry, and, at this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact oil and gas assets.

Our business and results of operations are subject to physical risks associated with climate change.

Changes in climate have caused, and are expected to continue to cause, among other things, increasing mean annual temperatures, rising sea levels and changes to meteorological and hydrological patterns, as well as impacts to the frequency and intensity of wildfires, freezes, floods, drought, hurricanes, other storms and severe weather-related events and natural disasters. These changes have and could continue to significantly impact our future results of operations and may have a material adverse effect on our business, financial condition and results of operations. Accordingly, a natural disaster has the potential to disrupt our and our third-party E&P operators’ businesses and may cause us to experience work stoppages, project delays, financial losses and additional costs to resume operations, including increased insurance costs or loss of coverage, legal liability and reputational losses, and we expect that increasing physical climate-related impacts may result in further changes to the cost or availability of insurance in the future.

Our and our third-party E&P operators are subject to complex federal, state and other environmental, health and safety laws and regulations that could adversely affect the cost, manner or feasibility of conducting our operations or expose us and our third-party E&P operators to significant liabilities.

Our operations, through PhoenixOp and our third-party E&P operators, are subject to a complex and rapidly evolving set of federal, state, local and international environmental, health and safety laws and regulations. These laws govern the generation, use, storage, release, management and disposal of, or exposure to, hazardous materials and wastes, the remediation of contaminated sites, fuel storage, wastewater and stormwater discharges, air emissions, the protection of natural resources (such as protected wetlands or threatened and endangered species and their habitat) and occupational health and safety. These laws, rules and regulations may require us to obtain and maintain regulatory licenses, permits and other approvals, comply with the requirements of such licenses, permits and other approvals and perform environmental impact studies prior to commencing new projects or making changes to existing projects.

We, through PhoenixOp and our third-party E&P operators, perform work involving hazards and operating risks associated with drilling for and production of crude oil, natural gas, and NGL, including the risk of fire, explosions, blowouts, surface cratering, uncontrollable flows of crude oil, natural gas, NGL, and formation water, pipe or pipeline failures, abnormally pressured formations, casing collapses, and environmental hazards, such as crude oil and NGL spills, natural gas leaks and ruptures, or discharges of toxic gases.

In addition, their operations are subject to risks associated with hydraulic fracturing. These risks include any mishandling, surface spillage, or potential underground migration of fracturing fluids, including chemical additives. The occurrence of any of these events could result in substantial losses to us or our third-party E&P operators due to injury or loss of life, severe damage to or destruction of property, natural resources, and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties, suspension of operations, and repairs required to resume operations, which in turn could have a material adverse effect on our financial condition, results of operations, and cash flows.

The exploration and possible future development phases of our business and the business of our third-party E&P operators are and will be subject to federal, state, and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set out limitations on the generation, transportation, storage, and disposal of solid and hazardous waste. New environmental legislation may impose stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental regulatory scrutiny, and a heightened degree of responsibility for

 

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companies and their officers, directors, and employees. Potential changes in environmental regulations, if any, may adversely affect our operations and the operations of the third-party E&P operators on our land. If we fail to comply with any of the applicable environmental laws, regulations, or permit requirements, we could face regulatory or judicial sanctions. Penalties imposed by either the courts or administrative bodies could delay or stop our operations or the operations of the third-party E&P operators on our land or require considerable capital expenditures. Furthermore, certain groups opposed to exploration and mining may attempt to interfere with our operations through the legal or regulatory process or by engaging in disruptive protest activities.

Unknown environmental hazards, potentially caused by previous or existing owners or operators, may exist on properties in which we hold an interest. Our properties could be located on or near an ongoing environmental cleanup site, which may result in unexpected liabilities, with total costs that are difficult to predict.

The Comprehensive Environmental, Response, Compensation and Liability Act (“CERCLA”) and comparable state statutes impose strict joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA, and comparable state statutes can impose liability for clean-up costs of sites and disposal of substances found on exploration, mining, and processing sites long after activities on such sites have been completed.

The CAA restricts the emission of air pollutants from many sources, including mining and processing activities. The mining operations conducted by third parties on our land may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities, and the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring, and/or control requirements under the CAA and state air quality laws. In undeveloped properties, third-party operators may be required to obtain permits before work can begin, and, in properties with existing facilities, our operators may need to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on their production levels or result in additional capital expenditures to comply with the rules.

The National Environmental Policy Act requires federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including issuance of permits to mining facilities, and assessing alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed statement known as an Environmental Impact Statement (“EIS”). The EPA, other federal agencies, and any interested third parties will review and comment on the scoping of the EIS and the adequacy of and findings set forth in the draft and final EIS. This process can cause delays in issuance of required permits or result in changes to a project to mitigate its potential environmental impacts, which can in turn adversely impact the economic feasibility of a proposed project.

The Clean Water Act (the “CWA”) and comparable state statutes impose restrictions and controls on the discharge of pollutants into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The CWA regulates storm water mining facilities and requires a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations. The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil, criminal, and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.

 

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The Safe Drinking Water Act (the “SDWA”) and the Underground Injection Control (the “UIC”) program promulgated thereunder regulate the drilling and operation of subsurface injection wells. The EPA directly administers the UIC program in some states and in others the responsibility for the program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection well. Violation of these regulations and/or contamination of groundwater by mining-related activities may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SDWA and state laws. In addition, third-party claims may be filed by neighboring landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.

There can be no assurance that our defense of such claims will be successful. A successful claim against us or any of the third parties we contract with could have an adverse effect on our business prospects, financial condition, and results of operation.

We or our third-party E&P operators could be subject to environmental lawsuits.

The oil and natural gas industry involves various operational hazards and risks, such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas, or well fluids, fires, spills, pollution, releases of toxic gas, and other environmental threats. These hazards could result in substantial losses from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources, and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties, and suspension of operations. In addition, we may be held liable for environmental damages caused by previous owners or operators of property we have acquired. Environmental hazards and damages resulting may extend beyond our land, prompting neighboring landowners and other third parties to file claims under environmental statutes and common law for personal injury and property damage allegedly resulting from the release of hazardous substances or other waste material into the environment on or near our properties. There can be no guarantee that our defense of such claims will be successful. A successful claim against us or any of the third parties we contract with to conduct operations on our land could have an adverse effect on our business prospects, financial condition, and results of operation.

We do not currently own any registered intellectual property rights relating to our software system and may be subject to competitors developing the same technology.

As of the date of this Offering Circular, we do not own any registered intellectual property rights for our software system used in our mineral rights discovery, grading and estimates, and acquisition. We rely on trade secret laws to protect our software. There can be no assurance that these protections will be available in all cases or will be adequate to prevent third parties from copying, reverse engineering, or otherwise obtaining and using our software. We substantially rely on this software to identify profitable assets ahead of our competitors. If an existing competitor or anyone else replicates our software, then we may be unable to successfully compete and may be unable to identify, acquire, and invest in attractive assets, which would have a material adverse effect on our business and our ability to repay any of our debts, including the obligations under the Notes and the Preferred Shares.

Third parties may initiate legal proceedings alleging that our use of our software system is infringing or otherwise violating their intellectual property rights, which could lead to costly disputes or disruptions.

Our commercial success depends in part on our ability to continue to develop and use our proprietary mineral exploration software system without infringing the intellectual property or proprietary rights of third parties. However, from time to time, we may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual property. Intellectual property disputes can be costly to defend and may cause our business, operating results, and financial condition to suffer. As the applied science industry and investments in mineral rights in the United States expand, the risk increases that there may be patents issued to third parties that relate to our software of which we are not aware or that we must challenge to continue our operations as

 

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currently contemplated. Whether merited or not, we may face allegations that we or parties indemnified by us have infringed or otherwise violated the patents, trademarks, copyrights, or other intellectual property rights of third parties. Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties. We may also face allegations that our employees have misappropriated the intellectual property or proprietary rights of their former employers or other third parties.

It may be necessary for us to initiate litigation to defend ourselves in order to determine the scope, enforceability, and validity of third-party intellectual property or proprietary rights, or to establish our respective rights. Regardless of whether claims that we are infringing patents or other intellectual property rights have merit, such claims can be time-consuming, can divert management’s attention and financial resources, and can be costly to evaluate and defend. Results of any such litigation are difficult to predict and may require us to stop commercializing or using our products or technology, obtain licenses, modify our solutions and technology while we develop non-infringing substitutes, incur substantial damages or settlement costs, or face a temporary or permanent injunction prohibiting us from marketing or providing the affected products and solutions. If we require a third-party license, it may not be available on reasonable terms or at all, and we may have to pay substantial royalties or upfront fees or grant cross-licenses to intellectual property rights for the use of our software. We may also have to redesign our software so it does not infringe third-party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, during which our technology may not be available for use. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not obtain a third-party license to the infringed technology, license the technology on reasonable terms, or obtain similar technology from another source, our operations could be adversely impacted.

Further, some third parties may be able to sustain the costs of complex litigation more effectively than we can because they have substantially greater resources. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on our business. Moreover, any uncertainties resulting from the initiation and continuation of any legal proceedings could have a material adverse effect on our ability to raise the funds necessary to continue our operations. Assertions by third parties that we violate their intellectual property rights could therefore have a material adverse effect on our business, financial condition, and results of operations.

Current and future litigation, regulatory, administrative, or other legal proceedings could have a material adverse effect on our business and results of operations.

Lawsuits and regulatory, administrative, or other legal proceedings that have arisen or may arise, including, but not limited to, in connection with our oil and gas operations and the financing thereof, can involve substantial costs, including the costs associated with investigation, litigation, and possible settlement, judgment, penalty, or fine. In addition, such matters may be time-consuming to defend or prosecute and may require a commitment of management and personnel resources that will be diverted from our normal business operations. There can be no assurance that costs associated with such matters will not exceed the limits of any applicable insurance policies that we may have. Moreover, we may be unable to continue to maintain any insurance at a reasonable cost, if at all, or to secure additional coverage, which may result in costs being uninsured. Our business, financial condition, and results of operations could be adversely affected if a matter is adversely determined and, irrespective of a final determination, any such matter could significantly impact our reputation and ability to conduct our business.

General Risks

Our business could be adversely affected by unfavorable economic and political conditions.

Our future business and operations are sensitive to general business and economic conditions in the United States. National and regional economies and financial markets have become increasingly interconnected, which

 

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increases the possibilities that conditions in one country, region, or market might adversely impact companies in a different country, region, or market. Major economic or political disruptions, such as trade disputes between the United States and other countries, the slowing economy in China, the conflicts in the Middle East, including with Iran and between Hamas and Israel in Gaza, the war in Ukraine and sanctions on Russia, and a potential economic slowdown in the United Kingdom and Europe, may have global negative economic and market repercussions. While we do not have or intend to have operations in those countries, such disruptions may nevertheless cause fluctuations in oil prices, which could impact our ability to generate cash flows and, in turn, make interest and principal payments to you. Additionally, the resulting political instability and societal disruption from these events and other factors, such as declining business and consumer confidence, may contribute to an economic slowdown and a recession. If the economic climate in the United States or abroad deteriorates, worldwide demand for oil and natural gas products could diminish, which could impact our and our third-party E&P operators’ operations, affect our ability and the ability of our third-party E&P operators to continue operations, and ultimately materially adversely impact our results of operations, financial condition, and cash flows.

Other significant factors that are likely to continue to affect commodity prices in future periods include, but are not limited to, the effect of U.S. energy, monetary, and trade policies and the new administration’s energy and environmental policies, all of which are beyond our control. Our business may also be adversely impacted by any future government rule, regulation, or order that may impose production limits, as well as pipeline capacity and storage constraints. We cannot predict the ultimate impact of these factors on our business, financial condition, and cash flows.

Any future global or domestic health crisis and uncertainty in the financial markets may adversely affect our ability to generate revenues.

The COVID-19 pandemic and other public health emergencies historically have had a material adverse effect on oil and gas businesses, due to governmental restrictions, associated repercussions, and operational challenges to supply and demand for oil and natural gas and the economy generally. The impacts of public health emergencies are uncertain and hard to predict. An extended period of global supply chain and economic disruption, as well as significantly decreased demand for oil and gas, due to any future public health emergencies, or otherwise, could have a material adverse effect on our business, access to sources of liquidity, and financial condition. Additionally, extended disruptions to the global economy are likely to cause fluctuations in oil prices and the timing of oil production, which could have a material adverse effect on our ability to generate cash flow, which in turn could limit our ability to pay principal and interest on the Notes and distributions on the Preferred Shares.

Inflation could adversely impact our ability to control costs, including the operating expenses and capital costs of our third-party operating partners.

Concerns over global economic conditions, energy costs, supply chain disruptions, increased demand, labor shortages associated with a fully employed U.S. labor force, the imposition of new tariffs, geopolitical issues, high levels of inflation, the availability and cost of credit and the U.S. financial market, and other factors have contributed to increased economic uncertainty and diminished expectations for the global economy. Although inflation in the United States had been relatively low for many years, there was a significant increase in inflation beginning in the second half of 2021 and higher rates have generally persisted through the first quarter of 2025. We continue to develop plans to address these pressures and protect our access to commodities and services. Nevertheless, we expect for the foreseeable future to experience supply chain constraints and inflationary pressure on operating costs.

High inflation may cause our third-party operators to experience increasing costs for their operations, including oilfield services and equipment and increased personnel costs. Our operating partners may pass on such increased costs to us and have a negative effect on our business and financial condition. Sustained levels of high

 

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inflation have likewise caused the United States Federal Reserve (“Federal Reserve”) and other central banks to increase interest rates multiple times in an effort to curb inflationary pressure on the costs of goods and services across the United States, which has had the effects of raising the cost of capital and depressing economic growth, either of which, or the combination thereof, could hurt the financial results of our business. We cannot predict any future trends in the rate of inflation and any continued significant increase in inflation, to the extent we are unable to recover higher costs through higher prices and revenues for our products, would negatively impact our business, financial condition, and results of operations.

Increased attention to environmental, social, and governance (“ESG”) matters may impact our business.

Businesses across all industries are facing increasing scrutiny from stakeholders related to their ESG practices. If we do not adapt to or comply with investor or stakeholder expectations and standards, which are evolving, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and our business, financial condition, and results of operations could be materially and adversely affected. Increasing attention to climate change, increasing societal expectations on businesses to address climate change, and potential consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our hydrocarbon products, reduced profits, increased investigations and litigation, and negative impacts on our ability to access capital markets.

In addition, organizations that provided information to investors on corporate governance and related matters have developed rating processes for evaluating business entities on their approach to ESG matters. Currently, there are no universal standards for such scores or ratings, but the importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders. Such ratings are used by some investors to inform their investment and voting decisions.

Additionally, certain investors use these scores to benchmark businesses against their peers. If we are perceived as lagging, our investors may engage with such third-party organizations to require improved ESG disclosure or performance.

Certain other stakeholders have also pressured commercial and investment banks to stop financing oil and gas and related infrastructure projects. Although the impact of future Trump Administration policies is currently unknown, if this negative sentiment continues, it may reduce the availability of capital funding for potential development projects, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Investment in new business ventures could prove unsuccessful and adversely affect our business, financial condition, and results of operations.

In the future, we may invest in new business ventures. Such endeavors may involve risks and uncertainties, including greater-than-expected liabilities and expenses, as well as economic and regulatory challenges associated with operating in new businesses, regions, or countries. Investment into new business ventures may expose us to additional risks that could delay or prevent us from completing an investment or otherwise limit our ability to fully realize the anticipated benefits of an investment. The failure of any significant investment could adversely affect our business, financial condition, and results of operations.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under Notes, the Preferred Shares and our other indebtedness.

We have a significant amount of indebtedness. We may not generate sufficient cash flow from operations, or have future borrowings available under credit facilities or other sources of financing, to enable us to repay our

 

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indebtedness, to pay distributions on the Preferred Shares, or to fund our other liquidity needs. As of March 31, 2025, after giving effect to the borrowing of additional $150.0 million in aggregate under the Fortress Credit Agreement in April, May and August 2025, we had approximately $1,234.4 million of indebtedness outstanding, which comprised $400.0 million outstanding under the Fortress Credit Agreement, $163.0 million outstanding under the Adamantium Loan Agreement (and corresponding amount of Adamantium Securities), $571.7 million of Reg D Bonds outstanding, and $99.6 million of Reg A Bonds outstanding. Furthermore, the Fortress Credit Agreement provides for a rebate of approximately $15.0 million in original issue discount, payable by setoff against final payment in full of the Fortress Credit Agreement, if (a) all outstanding principal and accrued interest on the loans under the Fortress Credit Agreement are paid in full in cash on or before December 18, 2027, and (b) no event of default resulting from the failure to pay principal or interest when due under the terms and conditions of the Fortress Credit Agreement has occurred prior to such date, subject to certain other conditions. See “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”

Specifically, our high level of indebtedness could have important consequences, including:

 

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making it more difficult for us to satisfy our obligations with respect to the Notes, the Preferred Shares and our other indebtedness, and if we fail to comply with these requirements, an event of default could result under the Notes or other indebtedness and we may be unable to make distributions or conduct redemptions with respect to the Preferred Shares;

 

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limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments, acquisitions, or other general corporate requirements;

 

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requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments, acquisitions, and other general corporate purposes;

 

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increasing our vulnerability to general adverse economic and industry conditions;

 

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exposing us to the risk of increased interest rates, as borrowings under the Fortress Credit Agreement are at variable rates of interest;

 

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limiting our flexibility in planning for and reacting to changes in the industry in which we compete and to changing business and economic conditions;

 

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placing us at a disadvantage compared to other, less leveraged competitors or competitors with better access to capital resources, and generally affecting our ability to compete; and

 

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increasing our cost of borrowing.

Any such consequences could have a material adverse effect on our business, results of operations, and financial condition.

Despite our current level of indebtedness, we will still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above.

We may incur significant additional indebtedness in the future. The indentures that govern our Notes do not contain any limitations on our ability to incur additional indebtedness. Although the Fortress Credit Agreement contains, and the terms of future indebtedness we incur may contain, restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. If we incur any additional debt, the holders of that indebtedness will be entitled to repayment in full from any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution, or other winding up of us prior to any payment to holders of Preferred Shares. This could reduce the amount of proceeds paid to you. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. If new indebtedness or other obligations are added to our current indebtedness levels, the related risks that we now face would increase.

 

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We may not be able to generate sufficient cash to service all of our existing and future indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

As a result of our substantial indebtedness, a significant amount of our cash flow will be required to pay interest and principal on our outstanding indebtedness. Our ability to make scheduled payments on or refinance our indebtedness, or to make distribution payments on the Preferred Shares, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal of, premium, if any, and interest on our indebtedness, the distributions on the Preferred Stock or to service our other obligations.

We recorded net income (loss) of $5.6 million and $(8.4) million for the three months ended March 31, 2025 and 2024, respectively, and net income (loss) of $(24.8) million, $(16.2) million, and $5.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. Through 2024, we incurred a significant amount of debt in order to accelerate the growth of our business by acquiring additional assets and establishing our direct drilling operations. As a result, our cash flows from operations alone would not have been sufficient to service required cash interest and principal payment obligations under our then-existing debt in 2023 and 2024. During the three months ended March 31, 2025, we continued to incur a significant amount of debt. Furthermore, as of December 31, 2024, we estimate that we will need to make approximately $749.3 million and $3,224.8 million in capital expenditures to develop all our proved and probable undeveloped reserves, respectively, and that we will need to raise approximately $658.9 million in additional capital through the end of 2028 to fund such development. Although we expect our cash flows from operations to be sufficient to service cash interest and principal payment obligations under our debt for the foreseeable future, there can be no assurance as to the sufficiency of our cash flows for that purpose, and we do not expect such cash flows alone to be adequate to fund both our debt service obligations and the development of our reserves. Therefore, we expect to require additional capital to fund our growth and may require additional liquidity to service our debt. As a result, we may use the proceeds of additional debt or securities offerings or this offering to make interest and principal payments on our existing debt. See “Risk Factors—Risks Related to Our Business and Operations—The acquisition and development of our properties, directly or through our third-party E&P operators, will require substantial capital, and we and our third-party E&P operators may be unable to obtain needed capital or financing on satisfactory terms or at all, including as a result of increases in the cost of capital resulting from Federal Reserve policies in the past few years and otherwise,” “Risk Factors—Risks Related to Our Indebtedness—Despite our current level of indebtedness, we will still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above,” “Risk Factors—Risks Related to Our Indebtedness—We may not be able to generate sufficient cash to service all of our existing and future indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful,” “Risk Factors—Risks Related to the Preferred Shares and this Offering—The Preferred Shares are junior and subordinated to our existing and future indebtedness,” “Risk Factors—Risks Related to the Preferred Shares and this Offering—We may invest or spend the proceeds of this offering in ways with which you may not agree,” “Use of Proceeds,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

If our cash flows from operations and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. If we cannot make scheduled payments on our indebtedness, we will be in default and holders of such indebtedness could declare all outstanding principal of, premium on, and interest, if any, on such indebtedness to be due and payable, and the lenders under any revolving or delayed draw credit facilities, including the Fortress Credit Agreement, could terminate their commitments to loan money to us. As a result of a default, any secured lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. All of these events could result in your losing all or a part of your investment in the Preferred Shares.

 

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Furthermore, the Fortress Credit Agreement restricts, and our future indebtedness may restrict, our ability to dispose of assets and use the proceeds from such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

We will need to repay or refinance a substantial amount of our indebtedness. Failure to do so could have a material adverse effect on our business, results of operations, and financial condition.

As of March 31, 2025, after giving effect to the borrowing of additional $150.0 million in aggregate under the Fortress Credit Agreement in April, May and August 2025, we had approximately $690.7 million of indebtedness maturing within three years, including all amounts under the Fortress Credit Agreement, $774.0 million of indebtedness maturing within five years, including all amounts under the Fortress Credit Agreement $911.2 million of indebtedness maturing within seven years, and $1,234.4 million of indebtedness maturing within eleven years. Furthermore, the Fortress Credit Agreement provides for a rebate of approximately $15.0 million in original issue discount, payable by setoff against final payment in full of the Fortress Credit Agreement, if (a) all outstanding principal and accrued interest on the loans under the Fortress Credit Agreement are paid in full in cash on or before December 18, 2027, and (b) no event of default resulting from the failure to pay principal or interest when due under the terms and conditions of the Fortress Credit Agreement has occurred prior to such date, subject to certain other conditions. The terms of the Registered Notes, Adamantium Securities, the Reg A Bonds, the Subordinated Reg D Bonds, and the July 2022 506(c) Bonds contain mandatory redemption provisions providing the holders thereof with the ability to request redemption of their bonds at any time prior to maturity at a price equal to 100% (with respect to the Adamantium Secured Note), 90% (with respect to the July 2022 506(c) Bonds), or 95% (with respect to the Adamantium Bonds, the Reg A Bonds, and the Subordinated Reg D Bonds) of the principal amount being redeemed. The amount of such redemption is limited (i) on an annual basis to 10% of the aggregate principal amount of Registered Notes, Adamantium Bonds, Reg A Bonds, or Subordinated Reg D Bonds, as applicable, then issued and outstanding and (ii) $5.0 million in aggregate principal amount of the Adamantium Secured Note in any 12-month period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” Consequently, we will need to repay, refinance, replace, or otherwise extend the maturity of a substantial amount of our existing indebtedness. Our ability to repay, refinance, replace, or extend will be dependent on, among other things, business conditions, our financial performance, and the general condition of the financial markets. If a financial disruption were to occur at the time that we are required to repay such indebtedness, we could be forced to undertake alternate financings, negotiate for an extension of the maturity of such indebtedness, or sell assets and delay capital expenditures in order to generate proceeds that could be used to repay such indebtedness. We cannot assure you that we will be able to consummate any such transaction on terms that are commercially reasonable, on terms acceptable to us, or at all. Our failure to repay, refinance, replace, or otherwise extend the maturity of our indebtedness could result in an event of default under the documents governing our indebtedness, which could lead to an acceleration or repayment of substantially all of our outstanding indebtedness. All of these events could result in your losing all or a part of your investment in the Preferred Shares.

The terms of our outstanding indebtedness restrict, and the terms of future indebtedness we may incur may restrict, our current and future operations, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests.

The agreements governing certain of our existing indebtedness contain, and the agreements governing future indebtedness we may incur may contain, a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

 

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incur additional indebtedness and guarantee indebtedness;

 

•

issue equity securities;

 

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•

pay distributions or make other distributions in respect of, or repurchase or redeem, any of our securities;

 

•

prepay, redeem, or repurchase certain indebtedness;

 

•

make loans and investments;

 

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sell or otherwise dispose of assets;

 

•

incur liens;

 

•

enter into transactions with affiliates;

 

•

designate any of our subsidiaries as unrestricted subsidiaries;

 

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enter into agreements restricting our subsidiaries’ ability to pay distributions;

 

•

consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; and

 

•

prepay subordinated or junior lien indebtedness.

In addition, the Fortress Credit Agreement contains financial covenants that require us to maintain (a) a maximum total secured leverage ratio (i) as of the last day of any fiscal quarter ending on or before December 31, 2025 of less than or equal to 2.00 to 1.00 (commencing with the fiscal quarter ending December 31, 2024) and (ii) as of the last day of any fiscal quarter ending on or after March 31, 2026 of less than or equal to 1.50 to 1.00, (b) a minimum current ratio as of the last day of each calendar month of (i) 0.90 to 1.00 from September 30, 2024 through October 31, 2024, (ii) 0.80 to 1.00 from November 30, 2024 through November 30, 2025, (iii) 0.90 to 1.00 from December 31, 2025 through December 31, 2026, and (iv) 1.00 to 1.00 for each calendar month ending thereafter, and (c) a minimum asset coverage ratio as of the last day of any fiscal quarter (i) ending during the period from June 30, 2024 through December 31, 2024, of at least 2.00 to 1.00, (ii) ending during the period from March 31, 2025 through September 30, 2025, of at least 1.70 to 1.00, and (iii) ending during the period from December 31, 2025 and thereafter, of at least 2.00 to 1.00. Our ability to meet the financial covenant could be affected by events beyond our control.

Furthermore, subject to certain conditions, the Reg A Bonds require that we offer to purchase all or any amount of the outstanding Reg A Bonds at a price equal to the then outstanding principal on the Reg A Bonds being repurchased plus any accrued but unpaid interest on such Reg A Bonds, upon a change of control.

These restrictions may affect our ability to service our indebtedness or grow in accordance with our strategy. As a result of all of these restrictions, we may be:

 

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limited in how we conduct our business;

 

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unable to raise additional indebtedness or equity financing to operate during general economic or business downturns; or

 

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unable to compete effectively or to take advantage of new business opportunities.

A breach of the covenants under any such indebtedness could result in a default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related indebtedness and may result in the acceleration of any other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the Fortress Credit Agreement or any other revolving or delayed draw credit facilities would permit the lenders under those facilities to terminate all commitments to extend further credit thereunder.

Furthermore, if we were unable to repay the amounts due and payable under any secured indebtedness, including the Fortress Credit Agreement, those lenders could proceed against the collateral granted to them, including our available cash, to secure that indebtedness, subject to the provisions of any outstanding intercreditor arrangements. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. All of these events could result in your losing all or a part of your investment in the Preferred Shares.

 

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Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the Fortress Credit Agreement are, and borrowings under indebtedness we may incur in the future may be, at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness and paying distributions on the Preferred Shares will correspondingly decrease. In the future, we may enter into interest rate swaps that involve the exchange of floating-for fixed-rate interest payments in order to reduce interest rate volatility or risk. However, we may not maintain interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully or effectively mitigate our interest rate risk.

Risks Related to the Preferred Shares and this Offering

Investing in the Preferred Shares is a highly speculative investment and could result in the loss of your entire investment.

A purchase of the Preferred Shares offered in this offering is speculative and involves a high degree of risk. The Preferred Shares should not be purchased by any person who cannot afford the loss of his, her or its entire purchase price. Our business objectives are also speculative, and there can be no assurance that we will be able to satisfy our objectives. As such, each prospective investor in the Preferred Shares should read these risk factors and this Offering Circular carefully and consult with their attorney, business advisor and/or investment advisor before investing in the Preferred Shares.

The Preferred Shares represent perpetual equity interests in us, and investors should not expect us to redeem any Preferred Shares on any particular date following the completion of this offering.

The Preferred Shares represent perpetual equity interests in us, and they have no maturity or mandatory redemption date and are not redeemable at the option of investors under any circumstances. As a result, unlike our indebtedness, none of the Preferred Shares will give rise to a claim for payment of a principal amount at a particular date. Instead, the Preferred Shares may be redeemed by us at our option at any time or from time to time, out of funds legally available for such redemption, at a redemption price payable in cash of $27.50 per Preferred Share plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption, whether or not declared.

Any decision we may make at any time to redeem the Preferred Shares will depend upon, among other things, our evaluation of our capital position and general market conditions at that time. In addition, the instruments governing our outstanding indebtedness currently do and may in the future limit our ability to redeem the Preferred Shares. For example, under the terms of the Fortress Credit Agreement we may only redeem the Preferred Shares so long as, among others, (i) no default or event of default has occurred and is continuing or would occur as a result of such redemption and (ii) immediately after giving effect to such redemption we remain in compliance with the financial covenants to maintain (a) a maximum total secured leverage ratio, (b) a minimum current ratio, and (c) a minimum asset coverage ratio on a pro forma basis. For a description of the terms of the Fortress Credit Agreement, including these ratios, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Fortress Credit Agreement” and “Risk Factors— Risks Related to Our Indebtedness—The terms of our outstanding indebtedness restrict, and the terms of future indebtedness we may incur may restrict, our current and future operations, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests.” As a result, the holders of the Preferred Shares should expect to bear the financial risks of an investment in the Preferred Shares for an indefinite period of time. Moreover, as further described below, the Preferred Shares will rank junior to all of our existing and future indebtedness and other liabilities with respect to assets available to satisfy claims against us.

 

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We are not required to accumulate cash for the purpose of meeting our future obligations to holders of the Preferred Shares, which, along with the agreements governing our indebtedness, may limit the cash available to make distributions on the Preferred Shares.

Pursuant to the terms of the Preferred Shares, distributions on the Preferred Shares will accrue whether or not we have earnings, whether there are assets legally available for the payment of such distributions and whether such distributions are authorized or declared. However, future distributions on our common shares and preferred shares, including the Preferred Shares, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash flow from operations, financial condition and capital requirements, any debt service requirements and any other factors our board of directors deems relevant. Our ability to pay cash distributions on the Preferred Shares is dependent on our ability to operate profitably and to generate cash from our operations. In addition, the instruments governing our outstanding indebtedness currently do and may in the future limit our ability to make distributions with respect to the Preferred Shares. For example, under the terms of the Fortress Credit Agreement we may only declare or make a distribution with respect to the Preferred Shares so long as, among others, (i) no default or event of default has occurred and is continuing or would occur as a result of such distribution and (ii) immediately after giving effect to such distribution we remain in compliance with the financial covenants to maintain (a) a maximum total secured leverage ratio, (b) a minimum current ratio, and (c) a minimum asset coverage ratio on a pro forma basis. For a description of the terms of the Fortress Credit Agreement, including these ratios, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness—Fortress Credit Agreement” and “Risk Factors— Risks Related to Our Indebtedness—The terms of our outstanding indebtedness restrict, and the terms of future indebtedness we may incur may restrict, our current and future operations, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests.” We cannot guarantee that we will be able to make cash distributions or what the actual distributions will be for any future period. Further, we are not required to accumulate cash for the purpose of meeting our future obligations to holders of the Preferred Shares and the Preferred Shares are not subject to any sinking fund, which may reduce the extent of any cash available for distributions on the Preferred Shares.

The Preferred Shares are junior and subordinated to our existing and future indebtedness, and your interests could be diluted by the issuance of additional equity interests, including additional Preferred Shares, and by other transactions.

The Preferred Shares are junior and subordinated to all our existing and future indebtedness and to the indebtedness of our existing subsidiaries and any future subsidiaries. We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Preferred Shares. As of March 31, 2025, after giving effect to the borrowings of additional $150.0 million in aggregate under the Fortress Credit Agreement in April, May and August 2025, we would have had approximately $1,234.4 million of indebtedness outstanding. We have historically conducted, and from time to time may conduct, offerings of debt securities pursuant to Regulation D or Regulation A, or pursuant to our registration statement on Form S-1 (File No. 333-282862) and, as of the date of this Offering Circular, we and our subsidiaries are authorized to issue up to $2.7 billion in additional debt securities through such offerings. The payment of principal and interest on our existing and future debt reduces cash available for distribution, including the holders of the Preferred Shares. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Preferred Shares then outstanding and any Parity Securities that we have issued or may issue in the future, in which case, holders of the Preferred Shares will share ratably with holders of such Parity Securities (as defined herein).

The issuance of any Senior Securities (as defined herein) or additional Parity Securities (and including additional Preferred Shares) would dilute the interests of the holders of the Preferred Shares and could affect our ability to pay distributions on, redeem, or pay the liquidation preference on the Preferred Shares. Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of distributions for the

 

53

Preferred Shares. If we decide to issue additional debt or Senior Securities in the future, it is possible that these securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Future issuances and sales of Senior Securities, Parity Securities or Junior Securities, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Preferred Shares to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.

The Preferred Shares have only limited voting rights.

The holders of the Preferred Shares will have only limited voting rights. Except as set forth in our governing documents or as otherwise required by Delaware law, holders of the Preferred Shares generally will not have voting rights. Although the holders of the Preferred Shares are entitled to limited protective voting rights with respect to certain matters and additional voting rights contingent upon the occurrence of certain events, each as described in “Description of Capital and Preferred Shares—Series A Preferred Shares—Limited Voting Rights,” with respect to such matters, the Preferred Shares will generally vote separately as a class along with all other series of our Parity Securities that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting rights of holders of Preferred Shares are limited and may be significantly diluted, and the holders of any such other series of Parity Securities that we may issue may be able to control or significantly influence the outcome of any vote.

Market interest rates and other factors may affect the value of the Preferred Shares.

The price of the Preferred Shares will be impacted by the distribution yield on the Preferred Shares relative to market interest rates. An increase in market interest rates may lead prospective purchasers of the Preferred Shares to expect a higher yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution, including to the holders of the Preferred Shares. Accordingly, higher market interest rates could cause the market price of the Preferred Shares to decrease.

The trading prices of the Preferred Shares of the Preferred Shares will also depend on many other factors, which may change from time to time, including but not limited to:

 

•

the market for similar securities;

 

•

government action or regulation;

 

•

general economic conditions or conditions in the financial or energy markets;

 

•

our financial condition, performance and prospects; and

 

•

the financial condition, performance and prospects of similarly situated companies;

In addition, over the last several years, prices of equity securities, including equity securities issued by companies in our industry, in the U.S. trading markets have been experiencing extreme price fluctuations. As a result of these and other factors, investors who purchase the Preferred Shares in this offering may experience significant volatility, including a substantial and rapid decrease, in the market price of the Preferred Shares. This volatility and any decrease may be driven by factors unrelated to our operating performance or prospects.

Your ability to transfer the Preferred Shares at a time or price you desire may be limited by the absence of an active trading market, which may not develop.

The Preferred Shares are a new issue of securities with no established trading market. We intend to file an application to list the Preferred Shares on the NYSE American under the symbol “PHXE.P” but there can be no assurance that the NYSE American will approve the Preferred Shares for listing. Even if the NYSE American approves our application, however, an active trading market on the NYSE American for the Preferred Shares may not develop or, even if it develops, may not last, in which case the trading price of the Preferred Shares could be adversely affected and your ability to transfer your Preferred Shares will be limited.

 

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We will be a “controlled company” within the meaning of the corporate governance standards of the NYSE American. We intend to rely on exemptions from certain corporate governance standards. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Following the closing of this offering, Phoenix Equity will hold all of our common shares, representing limited liability company interests, and, as a result, other than under the limited circumstances described in this Offering Circular in which holders of the Preferred Shares have voting rights, Phoenix Equity will have all of the voting power of our company. As such, we will be a “controlled company” under the rules of NYSE American. As a controlled company, we may elect not to comply with certain corporate governance requirements, including the requirements that:

 

•

a majority of our board of directors consists of “independent directors,” as defined under the rules of such exchange;

 

•

our board of directors has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

•

our board of directors has a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Following the closing of this offering and for so long as we remain a “controlled company,” we may rely on these exemptions. Immediately following the closing of this offering, we will elect not to comply with certain corporate governance requirements under the rules, including the requirements above. As a result of these and any additional future elections, our board of directors may not have a majority of independent directors, we may never have a compensation committee consisting entirely of independent directors, and our directors may not be nominated or selected by independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NYSE American.

We will be a company listing only preferred securities on NYSE American and thus will only be required to comply with certain corporate governance requirements, including with respect to our audit committee, to the extent required by Rule 10A-3 under the Exchange Act.

The rules of NYSE American provide that companies listing only preferred or debt securities on NYSE American are only required to comply with the requirements to have a board that is composed of a majority of “independent directors,” an audit committee that is composed entirely of independent directors, an audit committee charter, and audit committee meeting requirements, responsibilities and authorities, to the extent required by Rule 10A-3 under the Exchange Act. Following the closing of this offering, we will be a company listing only preferred securities on NYSE American and thus will only be required to comply with such requirements to the extent required by Rule 10A-3 under the Exchange Act. We intend to comply with these reduced requirements and with the requirements of Rule 10A-3 under the Exchange Act. As a result, under these rules, we must have an audit committee of at least one director, which director must be independent. We expect to have at least one independent director upon the listing of the Preferred Shares on the NYSE American who will qualify as independent for audit committee purposes. As a result of these reduced requirements, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NYSE American, particularly with respect to the audit committee requirements set forth in the rules of NYSE American.

Assuming NYSE American approves our listing application, we may fail to comply with the continued listing standards of the NYSE American, which may result in a delisting of our Preferred Shares.

We have applied to list the Preferred Shares on the NYSE American under the symbol “PHXE.P.” Although after giving effect to this offering we expect to meet the minimum initial and continued listing standards set forth in NYSE American listing standards, we cannot assure you that the Preferred Shares will be, or will continue to be, listed on NYSE American in the future. In order to continue listing the Preferred Shares on NYSE American,

 

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we must maintain certain financial, distribution and stock price levels and must maintain a minimum number of holders of Preferred Shares.

If NYSE American determines to delist the Preferred Shares and we are not able to list the Preferred Shares on another national securities exchange, a reduction in some or all of the following may occur, each of which could have a material adverse effect on the holders of Preferred Shares:

 

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the liquidity of the Preferred Shares;

 

•

the market of the Preferred Shares;

 

•

our ability to obtain financing for the continuation of our operations;

 

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the number of investors that will consider investing in the Preferred Shares;

 

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the number of market makers in the Preferred Shares;

 

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the availability of information concerning the trading prices and volume of the Preferred Shares; and

 

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the number of broker-dealers willing to execute trades in the Preferred Shares.

In addition, the National Securities Markets Improvement Act of 1996 (“NSMIA”) provides for the federal preemption of state securities laws of “covered securities” under certain circumstances. Under NSMIA, covered securities include, among others, securities that are listed or approved on certain national securities exchanges (including NYSE American) and securities of an issuer that has securities listed or approved for listing on certain national securities exchanges where those securities are senior to the listed securities (for example, bonds issued by companies that have equity listed on a national securities exchange) or equal in rank to the listed securities. As a result, for so long as the Preferred Shares are listed on the NYSE American, we will not be required to register or qualify in any state the offer, transfer or sale of our Preferred Shares and any of our other securities that are senior or equal in rank to the Preferred Shares, including our Notes. If the Preferred Shares are delisted from the NYSE American and are not listed on another national securities exchange, the sale or transfer of the Preferred Shares and any of our other securities that are senior or equal in rank to the Preferred Shares, including our Notes, may not be exempt from state securities laws. In such event, we may need to register or otherwise qualify such securities for any offer, transfer or sale in certain states or determine that any such offer, transfer or sale is exempt under applicable state securities laws. To the extent that we do not register or otherwise qualify such securities, or determine that such securities are not exempt under applicable state securities laws, we and the holders of such securities may be limited in the ability to offer, transfer or sell such securities, which could have a material adverse effect on the value of such securities, on our ability to raise capital, and on our liquidity, business, financial condition, results of operations and prospects.

Our ability to issue Parity Securities in the future could adversely affect the rights of holders of our Preferred Shares.

We may in the future issue Parity Securities, which could have the effect of reducing the amounts available to the holders of the Preferred Shares issued in this offering upon our liquidation, dissolution or winding up if we do not have sufficient funds to pay all liquidation preferences of the Preferred Shares and any such Parity Securities in full. It also would reduce amounts available to make distributions on the Preferred Shares issued in this offering if we do not have sufficient funds to pay distributions on all outstanding Preferred Shares and any such Parity Securities. In addition, future issuances and sales of Parity Securities, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Preferred Shares to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.

Our ability to make distributions is limited by the requirements of Delaware law.

Our ability to make distributions may be adversely affected by a number of factors, including the risk factors described herein. Any reduction of our distributions would not only reduce the amount of distributions you would

 

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receive as a holder of our Preferred Shares, but could also have the effect of reducing the market price of our Preferred Shares and our ability to raise funds in new securities offerings.

In addition, the rate at which holders of our Preferred Shares are taxed on distributions we pay and the characterization of our distribution — be it ordinary income, capital gains, or a return of capital — could have an impact on the market price of our Preferred Shares and, in turn, our ability to raise funds in new securities offerings. After we announce the expected characterization of dividend distributions we have paid, the actual characterization (and, therefore, the rate at which holders of our Preferred Shares are taxed on the dividend distributions they have received) could vary from our expectation, including due to errors, changes made in the course of preparing our corporate tax returns, or changes made in response to an IRS audit, with the result that holders of our Preferred Shares could incur greater income tax liabilities than expected.

Holders of Preferred Shares may have liability to repay distributions.

Under certain circumstances, the holders of the Preferred Shares may have to repay amounts wrongfully returned or distributed to them. Under Section 18-607 of the Delaware Limited Liability Company Act (the “DLLCA”), we generally may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets. Liabilities to members on account of their equity interests and liabilities that are non-recourse to us are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that, unless otherwise agreed, for a period of three years from the date of an impermissible distribution, members who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited liability company for the distribution amount.

Using a credit card to purchase shares may impact the return on your investment as well as subject you to other risks inherent in this form of payment.

Investors in this offering have the option of paying for their investment with a credit card, which is not usual in the traditional investment markets. Transaction fees charged by your credit card company (which can reach 5% of transaction value if considered a cash advance) and interest charged on unpaid card balances (which can reach or exceed 25% in some states) add to the effective purchase price of the Preferred Shares you buy. The cost of using a credit card may also increase if you do not make the minimum monthly card payments and incur late fees.

Using a credit card is a relatively new form of payment for securities and will subject you to other risks inherent in this form of payment, including that, if you fail to make credit card payments (e.g. minimum monthly payments), you risk damaging your credit score and payment by credit card may be more susceptible to abuse than other forms of payment. Moreover, where a third-party payment processor is used, as in this offering, your recovery options in the case of disputes may be limited.

The increased costs due to transaction fees and interest may reduce the return on your investment. The SEC’s Office of Investor Education and Advocacy issued an Investor Alert dated February 14, 2018 entitled Credit Cards and Investments – A Risky Combination, which explains these and other risks you may want to consider before using a credit card to pay for your investment.

We may invest or spend the proceeds of this offering in ways with which you may not agree.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the currently intended purposes described in the section entitled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. We may not apply its cash from this offering in ways that ultimately increases the value of any investment in our securities. We may choose to use the proceeds in a manner that you do not agree with, and you will have no recourse. The failure by our management to apply the net proceeds from this offering effectively could harm our business.

 

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There may be a delay in transfer of Preferred Shares from the transfer agent to your broker and shares will not be able to be traded until received and cleared by your broker.

If you purchased your Preferred Shares online, your Preferred Shares will be held at the transfer agent in book entry. Once the Preferred Shares is listed on the NYSE American, you will be able to deposit any shares you purchased with a broker. Until you deposit your Preferred Shares in a brokerage account, the transfer agent will maintain the record of your ownership. Once you deposit your Preferred Shares with a broker, the broker will maintain that record. The transfer request must originate from your broker. The timing of the transfer varies from broker to broker and the Preferred Shares may take several days to transfer. During such time the trading shares may experience rapid and substantial price volatility, and price decline and you will not be able to trade until your broker receives and clears your shares for trading.

This offering is being conducted on a “best efforts” basis.

We are offering our Preferred Shares on a “best efforts” basis and we can give no assurance that all the offered Preferred Shares will be sold. If less than $75,000,000 of Preferred Shares are sold, we may be unable to fund all the intended uses described in this Offering Circular from the net proceeds anticipated from this offering without obtaining funds from alternative sources or using working capital that we generate from operations. Alternative sources of funding may not be available to us at what we consider to be a reasonable cost, and the working capital generated by our operations may not be sufficient to fund any uses not financed by net proceeds from this offering. No assurance can be given to you that any funds will be invested in this offering other than your own.

Risks Related to the Phoenix Equity’s Ownership of Our Common Shares and Certain LLCA Provisions.

The interests of holders of Preferred Shares may conflict with the interests of our controlling shareholder.

We are currently a member-managed limited liability company organized under the laws of the State of Delaware, and do not have a board of directors, board of managers, or similar construct (or any committees thereof). We are wholly owned and controlled by Phoenix Equity. LJC controls Phoenix Equity and, therefore, indirectly has control over our management. Following the closing of this offering, we will be a manager-managed limited liability company and our business and affairs will be managed under the direction of a board of directors. In addition, Phoenix Equity will continue to hold all of our common shares, representing limited liability company interests, and, as a result, other than under the limited circumstances described in this Offering Circular in which holders of the Preferred Shares have voting rights, we will continue to be controlled by Phoenix Equity. As a result of this concentrated control, Phoenix Equity will have the ability to determine corporate matters for the foreseeable future, including the power to, among other things:

 

•

elect or remove any of our directors, at any time, with or without cause;

 

•

approve changes to the Third ARLLCA that require shareholder approval (subject to the limited voting rights of the Preferred Shares), as described in the Section of this offering circular entitled Description of Capital and Preferred Shares—Series A Preferred Shares—Limited Voting Rights; and

 

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ratify the appointment of our auditors.

Phoenix Equity may also be able to prevent or cause (either by way of a sale of their own stake or by approving our merger or sale of as a whole) a change of control of Phoenix Energy One, LLC. Phoenix Equity’s control over us, and the Phoenix Equity’s ability to prevent or cause a change of control of Phoenix Energy One, LLC, may delay or prevent a change of control, or cause a change of control to occur at a time when it is not favored by other shareholders. As a result, the trading price of the Preferred Shares could be adversely affected.

 

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Our Third ARLLCA eliminates members of our board of directors’ fiduciary duties to us. If conflicts of interest arise among members of our board of directors and us, members of our board of directors may make decisions in their sole and absolute discretion, and shall be entitled to consider only such interests and factors as they desire, including their own interests.

Our Third ARLLCA contains provisions that eliminate the standards to which members of our board of directors’ would otherwise be held by state law, other than an implied contractual duty of good faith and fair dealing. To the extent permitted by any applicable law, members of board of directors will be able make any decision or determination with respect to the us or our business and affairs, whether pursuant to the terms of the Third ARLLCA or otherwise in their sole and absolute discretion, and shall be entitled to consider only such interests and factors as they desire, including their own interests, and shall have no duty or obligation, fiduciary or otherwise, to give any consideration to any interest of or factors affecting us or any of our shareholders, including holders of Preferred Shares. As a result, if members of our board of directors interests and duties to other entities conflict with our interests, members of our board of directors may favor their own interest over the interest of us and our shareholders.

Furthermore, the Third ARLLCA will provide that to the fullest extent permitted by DLLCA, members of our board of directors will not be liable to us or any of our shareholders for monetary damages unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that such member engaged in fraud, and we will also indemnify such members of our board of directors for to the fullest extent permitted by the DLLCA.

The Third ARLLCA contains an exclusive forum provision that may discourage lawsuits against us or our directors and officers.

The Third ARLLCA requires any dispute, controversy or claim arising out of or relating to the Third ARLLCA, or any breach, termination or the validity of the Third ARLLCA, our internal affairs, the ownership, transfer or rights or obligations of or with respect to any shares, or any action or inaction arising out of the foregoing, as well as any question of the arbitrator’s jurisdiction or the existence, scope or validity of the Third ARLLCA’s arbitration mechanism, to be submitted, upon notice delivered by any party to such claim, to confidential, final and binding arbitration. The foregoing arbitration requirements do not apply with respect to any suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Furthermore, the Third ARLLCA provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in our equity securities is deemed to have received notice of and consented to these provisions.

These choice of forum provisions may result in increased costs to shareholders to bring a claim, limit a shareholder’s ability to bring a claim in a forum that it finds favorable for disputes with us or our directors, officers or other employees, and may generally have the effect of discouraging lawsuits against us and our directors, officers and other employees. However, shareholders are not deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. The enforceability of similar choice of forum provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find these provisions in our Third ARLLCA to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

 

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Risks Related to Certain Tax Matters

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or if we were otherwise subject to a material amount of entity-level taxation, then cash available for distribution could be reduced.

The anticipated after-tax economic benefit of an investment in us depends largely on our being treated as a partnership for U.S. federal income tax purposes. Despite the fact that we are organized as a limited liability company under Delaware law, we will be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based on our current operations, we believe we satisfy the qualifying income requirement. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity. We have not requested, and do not plan to request, a ruling from the IRS with respect to our classification as a partnership for U.S. federal income tax purposes.

If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate and we would also likely pay additional state and local income taxes at varying rates. Distributions would generally be taxed again as corporate dividends, and no income, gains, losses or deductions would flow through to our members. Because a tax would be imposed upon us as a corporation, the cash available for distribution could be reduced. Thus, treatment of us as a corporation could result in a reduction in the anticipated cash-flow and after-tax return to our members, which would cause a reduction in the value of an investment in us.

At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise, capital, and other forms of business taxes, as well as subjecting nonresident partners to taxation through the imposition of withholding obligations and composite, combined, group, block, or similar filing obligations on nonresident partners receiving a distributive share of state “sourced” income. We currently own property or do business in Montana, Utah, Wyoming, Texas, North Dakota and Colorado, among other states. Imposition on us of any of these taxes in jurisdictions in which we own assets or conduct business or an increase in the existing tax rates could result in a reduction in the anticipated cash-flow and after-tax return to our members, which would cause a reduction in the value of your investment in us.

The tax treatment of publicly traded partnerships or an investment in our shares could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our shares, may be modified by administrative, legislative or judicial interpretation. From time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships or an investment in our shares, including eliminating partnership tax treatment for certain publicly traded partnerships, as well as reducing or eliminating certain key U.S. federal income tax incentives currently available to oil and natural gas exploration and production companies.

Any changes to federal income tax laws and interpretations thereof may or may not be applied retroactively and could make it more difficult or impossible for us to be treated as a partnership for federal income tax purposes or otherwise adversely affect our business, financial condition or results of operations. Any such changes or interpretations thereof could adversely impact the value of an investment in us.

A successful IRS contest of the federal income tax positions we take may adversely impact the market for Preferred Shares and the cost of any IRS contest will reduce our cash available for distribution.

The IRS has made no determination as to our status as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions we take, even positions taken with advice of counsel.

 

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It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take and such positions may not ultimately be sustained. A court may not agree with some or all of the positions we take. As a result, any such contest with the IRS may materially and adversely impact the market for our shares and the price at which our shares trade. In addition, our costs of any contest with the IRS, principally legal, accounting and related fees, will be indirectly borne by our members because the costs will reduce our cash available for distribution.

Preferred Shares that are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of Preferred Shares) may be considered disposed. If so, the holder of such Preferred Shares would no longer be treated for tax purposes as a partner with respect to those Preferred Shares during the period of the loan and may recognize gain or loss from the disposition.

Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a holder of Preferred Shares that are the subject of a securities loan may be considered as having disposed of the loaned shares. In that case, the holder of such Preferred Shares may no longer be treated for tax purposes as a partner with respect to those Preferred Shares during the period of the loan and may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those Preferred Shares may not be reportable by the shareholder and any cash distributions received by the holder as to those Preferred Shares could be fully taxable as ordinary income. You are encouraged to consult a tax advisor if you desire to assure your status as a partner and avoid the risk of gain recognition from a securities loan.

Certain tax consequences of the ownership of our Preferred Shares, including treatment of distributions as guaranteed payments for the use of capital, are uncertain.

The tax treatment of distributions on our Preferred Shares is uncertain. We will treat the holders of the Preferred Shares as partners for tax purposes and will treat distributions on the Preferred Shares as guaranteed payments for the use of capital that will generally be taxable to the holders of the Preferred Shares as ordinary income. Although a holder of Preferred Shares will recognize taxable income from the accrual of such a guaranteed payment (even in the absence of a contemporaneous cash distribution), we anticipate accruing and making the guaranteed payment distributions quarterly. Otherwise, except in the case of our liquidation, the holders of Preferred Shares are generally not anticipated to share in our items of income, gain, loss or deduction, nor will we allocate any share of our nonrecourse liabilities to the holders of Preferred Shares. See “Description of Capital and Preferred Shares—Series A Preferred Shares.” If the Preferred Shares were treated as indebtedness for tax purposes, rather than as guaranteed payments for the use of capital, distributions likely would be treated as payments of interest by us to the holders of Preferred Shares.

A holder of Preferred Shares will be required to recognize a gain or loss on a sale of Preferred Shares equal to the difference between the amount realized by such holder and such holder’s tax basis in the Preferred Shares sold. The amount realized generally will equal the sum of the cash and the fair market value of other property such holder receives in exchange for such Preferred Shares. Subject to general rules requiring a blended basis among multiple partnership interests, the tax basis of a Preferred Share will generally be equal to the sum of the cash and the fair market value of other property paid by the holder of such Preferred Shares to acquire such Preferred Shares. Gain or loss recognized by a holder of Preferred Shares on the sale or exchange of a Preferred Share held for more than one year generally will be taxable as long-term capital gain or loss. Because holders of Preferred Shares will generally not be allocated a share of our items of depreciation, depletion or amortization, it is not anticipated that such holders would be required to recharacterize any portion of their gain as ordinary income as a result of the recapture rules.

Investment in the Preferred Shares by tax-exempt investors, such as employee benefit plans and individual retirement accounts, and non-U.S. persons raises issues unique to them. The treatment of guaranteed payments for the use of capital to tax-exempt investors is not certain and such payments may be treated as unrelated business taxable income for U.S. federal income tax purposes.

 

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Distributions to non-U.S. holders of Preferred Shares will be subject to withholding taxes. If the amount of withholding exceeds the amount of U.S. federal income tax actually due, non-U.S. holders of Preferred Shares may be required to file U.S. federal income tax returns in order to seek a refund of such excess. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor with respect to the consequences of owning our Preferred Shares.

Our treatment of distributions on our Preferred Shares as guaranteed payments for the use of capital means that such distributions will not be eligible for the 20% deduction for qualified business income.

For taxable years ending on or before December 31, 2025, a non-corporate member may be entitled to a deduction equal to 20% of its “qualified business income” attributable to its interest in a partnership, subject to certain limitations. As described above, we will treat distributions on the Preferred Shares as guaranteed payments for the use of capital, and under the applicable Treasury Regulations (as defined below), a guaranteed payment for the use of capital will not be taken into account for purposes of computing qualified business income. As a result, distributions received by the holders of our Preferred Shares will not be eligible for the 20% deduction for qualified business income. Prospective holders of Preferred Shares should consult their tax advisors regarding the availability of the deduction for qualified business income.

Risks Relating to Our Status as a Public Reporting Company

We only recently became a public reporting company, and the obligations associated with being a public reporting company will require significant resources and management attention.

We only recently became a public reporting company, following the effectiveness of our Registration Statement with respect to the continuous offering of up to $750.0 million aggregate principal amount of Registered Notes, on May 14, 2025. As a recent public reporting company, we incur significant legal, regulatory, finance, accounting, investor relations, and other expenses that we previously did not incur as a private company, including costs associated with public company reporting requirements. We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act of 2002 (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act, and related rules implemented by the SEC. The expenses incurred by public reporting companies for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. Our management currently does, and will need to continue to, devote a substantial amount of time to ensure that we comply with all of these additional requirements, diverting the attention of management away from revenue-producing activities. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public reporting company, we could be subject to fines, sanctions, and other regulatory action and potentially civil litigation.

Failure to comply with requirements to design, implement, and maintain effective internal controls could have a material adverse effect on our business.

We were not previously required to evaluate our internal control over financial reporting in a manner that meets the standards of public reporting companies required by Section 404(a) of SOX (“Section 404”). As a public reporting company, we are subject to significant requirements for enhanced financial reporting and internal controls. The process of designing, implementing and maintaining effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public reporting company. If we are unable to establish or maintain

 

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appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements, and harm our results of operations. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the effectiveness of the Registration Statement. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business.

In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by SOX for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by us or our independent registered public accounting firm in connection with the issuance of their attestation report. Our testing, or the subsequent testing (if required) by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Any material weaknesses could result in a material misstatement of our annual or quarterly financial statements or disclosures that may not be prevented or detected.

Specifically, in connection with the audits of our financial statements as of and for the years ended December 31, 2022, 2023, and 2024, our auditors identified several material weaknesses, including material weaknesses concerning our internal control over financial reporting. These material weaknesses in internal controls were caused by inadequate separation of duties of our management within key financial areas. Other material weaknesses that were identified pertained to our lack of testing over our accounting systems, absence of a board of directors or an audit committee, improper use of accrual accounting, improper controls over the depletion calculation of proved and probable undeveloped reserves, and our use of an inadequate payroll reporting system. Any steps we take to enhance our internal control environment and address the underlying cause of our material weaknesses may not be sufficient to remediate such material weaknesses or to avoid the identification of additional material weaknesses in the future.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, or our independent registered public accounting firm may not issue an unqualified opinion. If we are unable to remediate the identified material weaknesses, identify additional material weaknesses in the future, or otherwise fail to maintain an effective system of internal controls, or our independent registered public accounting firm is unable to provide us with an unqualified report (to the extent it is required to issue a report), investors could lose confidence in our reported financial information, which could have a material adverse effect on our business, results of operations, and financial condition.

We identified certain misstatements to our previously issued financial statements and have restated certain of our consolidated financial statements, which may create additional risks and uncertainties.

On September 12, 2024, our management determined that our audited consolidated financial statements for the fiscal year ended December 31, 2022 (the “GAAS 2022 Audited Financial Statements”), contained in our Annual Report on Form 1-K for that year, which was filed in compliance with our offerings under Regulation A, should no longer be relied upon due to certain errors in the GAAS 2022 Audited Financial Statements as addressed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 250. We previously filed our Annual Report on Form 1-K for the fiscal year ended December 31, 2023 (the “2023 Form 1-K”) with the SEC on April 30, 2024, which filing contained corrected financial information for the fiscal year ended December 31, 2022. On September 26, 2024, we amended our 2023 Form 1-K (the “Form 1-K/A”) to reflect that we had restated the GAAS 2022 Audited Financial Statements.

 

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Subsequently, on March 7, 2025, our management concluded that each of (i) of our previously issued audited consolidated financial statements as of and for the fiscal years ended December 31, 2023 and 2022 (the “2023 and 2022 Audited Financial Statements”) contained in the Form 1-K/A and (ii) our previously issued unaudited condensed consolidated financial statements for the fiscal semiannual periods ended June 30, 2024 and 2023 (the “Semiannual Unaudited Financial Statements” and, together with the 2023 and 2022 Audited Financial Statements, the “Existing Financial Statements”) contained in our Semiannual Report on Form 1-SA/A for the fiscal semiannual period ended June 30, 2024 (the “Form 1-SA/A”), filed with the SEC on September 26, 2024, should no longer be relied upon due to certain errors in the Existing Financial Statements, as addressed in FASB ASC Topic 250. In the Existing Financial Statements, we had immediately expensed debt issuance costs related to our unregistered bond offerings rather than amortizing them over the weighted-average term of the bonds, which resulted in overstated advertising and marketing expense, selling, general, and administrative expense, and payroll and payroll-related expense, and understated interest expense and loss on debt extinguishment. Additionally, in the Existing Financial Statements, we had previously expensed all interest costs, rather than capitalizing interest incurred on expenditures made in connection with our exploration and development projects as permitted under ASC Topic 835-20, “Capitalized Interest,” resulting in us overstating our interest expense and understating our oil and gas properties, in corresponding amounts. Accordingly, on March 27, 2025, we further amended the Form 1-K/A and Form 1-SA/A to reflect that we had restated the Existing Financial Statements.

As a result of the restatements, we may become subject to a number of additional risks and uncertainties and unanticipated costs for accounting, legal, and other fees and expenses. We may become subject to legal proceedings brought by regulatory or governmental authorities, or other proceedings, as a result of the errors or the related restatements, which could result in a loss of investor confidence or other reputational harm, additional defense, and other costs. In addition, we cannot assure you that additional restatements of financial statements will not arise in the future. Any of the foregoing impacts, individually or in aggregate, may have a material adverse effect on our business, financial position, and results of operations.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Offering Circular contains forward-looking statements, which are statements regarding all matters that are not historical facts. They appear in a number of places throughout this Offering Circular and include statements regarding our current views, hopes, intentions, beliefs, or expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, and position in the markets and the industries in which we operate. These forward-looking statements are generally identifiable by forward-looking terminology such as “guidance,” “expect,” “believe,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “seek,” “estimate,” “should,” “will,” “would,” “approximately,” “predict,” “potential,” “may,” “continue,” and “assume,” as well as the negative version of such words, variations of such words, and similar expressions referring to the future.

Forward-looking statements are based on our beliefs, assumptions, and expectations, taking into account currently known market conditions and other factors. Our ability to predict results or the actual effect of future events, actions, plans, or strategies is inherently uncertain and involves certain risks and uncertainties, many of which are beyond our control. Our actual results and performance could differ materially from those set forth or anticipated in our forward-looking statements. Factors that could cause our actual results to differ materially from the expectations we describe in our forward-looking statements include, but are not limited to, the factors listed below and in the section of this Offering Circular entitled “Risk Factors.” When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Offering Circular. You are cautioned that the forward-looking statements contained in this Offering Circular are not guarantees of future performance, and we cannot assure you that such statements will be realized or that the forward-looking events and circumstances will occur. All forward-looking statements in this Offering Circular are made only as of the date this Offering Circular, based on information available to us as of the date of this Offering Circular, and we caution you not to place undue reliance on forward-looking statements in light of the risks and uncertainties associated with them.

The matters summarized below and elsewhere in this Offering Circular could cause our actual results and performance to differ materially from those set forth or anticipated in forward-looking statements:

 

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changes in the markets in which we compete;

 

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increasing costs of capital expenditures to acquire and develop properties;

 

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the continued success of our E&P operators;

 

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delays in development of and higher capital expenditures in our estimated proved and probable undeveloped reserves;

 

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developments in governmental regulations;

 

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deviations between the current market value of estimated proved reserves and the present value of future net revenues from our proved reserves;

 

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changes in current or future commodity prices;

 

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the fact that reserve estimates depend on many assumptions that may turn out to be inaccurate and that any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves;

 

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our ability to replace reserves;

 

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cybersecurity attacks;

 

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the development of our software and its ability to continue identifying productive assets;

 

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our current or future levels of indebtedness;

 

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repayment of our current or future indebtedness;

 

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