EXHIBIT 99.2

DRIFTWOOD ENERGY PARTNERS, LLC

CONSOLIDATED FINANCIAL STATEMENTS

Quarter Ended March 31, 2023 and 2022 and Year Ended December 2022

DRIFTWOOD ENERGY PARTNERS, LLC

CONSOLIDATED FINANCIAL STATEMENTS

Quarter Ended March 31, 2023 and 2022 and Year Ended December 2022

Table of Contents

Consolidated Financial Statements:
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Members’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

DRIFTWOOD ENERGY PARTNERS, LLC

CONSOLIDATED BALANCE SHEETS

	March 31, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,491,520	$	8,576,210
Accounts receivable	6,802,861		9,694,573
Prepaid expenses and other current assets	3,961,665		402,630
Total current assets	13,256,046		18,673,413
Oil and natural gas properties (successful efforts accounting):
Proved oil and natural gas properties	203,956,269		219,202,498
Unproved oil and natural gas properties	10,252,217		10,251,491
Accumulated depletion	(26,975,789)		(27,417,060)
Total oil and natural gas properties, net	187,232,697		202,036,929
Other non-current assets:
Other non-current assets	879,161		964,834
Total other non-current assets	879,161		964,834
Total assets	$	201,367,904	$	221,675,176
Liabilities and Members' Equity
Current liabilities:
Accounts payable	$	3,545,058	$	3,823,430
Accrued expenses	225,187		412,505
Revenue payable	3,048,152		5,985,736
Current derivative liability	1,808,856		5,621,893
Current portion of asset retirement obligations	254,976		254,976
Total current liabilities	8,882,229		16,098,540
Non-current liabilities:
Line-of-credit	49,460,685		77,161,685
Derivative liability	499,750		1,569,291
Asset retirement obligations	515,785		511,436
Total non-current liabilities	50,476,220		79,242,412
Members' equity
Members' equity	142,485,788		126,810,557
Members receivables	(476,333)		(476,333)
Total members' equity	142,009,455		126,334,224
Total liabilities and members' equity	$	201,367,904	$	221,675,176
See accompanying notes to consolidated financial statements.

2

DRIFTWOOD ENERGY PARTNERS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	For the Three Months Ended March 31,
	2023		2022
Revenues:
Oil Sales	$	20,171,226	$	6,323,409
Gas Sales	1,182,389		563,681
NGL Sales	2,426,831		952,443
Oil and natural gas sales, net	$	23,780,446	$	7,839,533
Operating Expenses:
Lease operating	3,396,241		861,126
Gathering & Processing	726,500		192,066
Production and ad valorem taxes	998,390		403,007
Depletion expense	5,069,339		868,853
Depreciation expense	—		456
Accretion expense	11,746		10,483
General and administrative	883,995		712,430
Exploration	116,194		—
Total operating expenses	11,202,405		3,048,421
Operating Income	12,578,041		4,791,112
Other Income (Expenses):
Unrealized gain (loss) on derivatives	4,882,579		(17,592,203)
Realized loss on derivatives	(1,916,020)		(2,512,453)
Interest expense	(1,170,104)		(391,871)
Gain on sale of assets	1,300,734		—
Total other expense	3,097,189		(20,496,527)
Net Income (Loss)	$	15,675,230	$	(15,705,415)
See accompanying notes to consolidated financial statements.

3

DRIFTWOOD ENERGY PARTNERS, LLC

CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (unaudited)

For the Three Months Ended March 31, 2023 and March 31, 2022

	Members' Equity		Member Receivables		Total
Balance at December 31, 2022	$	126,810,557	$	(476,333)	$	126,334,224
Net income	$	15,675,230	-		15,675,230
Balance at March 31, 2023	$	142,485,788	$	(476,333)	$	142,009,455
Balance at December 31, 2021	$	89,460,257	$	(476,333)	$	88,983,924
Net loss	$	(15,705,415)	-		$	(15,705,415)
Balance at March 31, 2022	$	73,754,842	$	(476,333)	$	73,278,509
See accompanying notes to consolidated financial statements.

4

DRIFTWOOD ENERGY PARTNERS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	For the Three Months Ended March 31,
	2023		2022
Operating Activities
Net income (loss)	$	15,675,230	$	(15,705,415)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion expense	5,069,339		868,853
Depreciation, amortization and accretion expense	11,746		10,882
Amortization of debt issuance costs	190,023		19,132
Interest (PIK)	—		138,816
Deferred rent liability	—		(3,844)
Gain on sale of assets	(1,300,734)		—
Change in derivative commodity contracts	(4,882,578)		17,592,203
Changes in operating assets and liabilities:
Accounts receivable	2,891,712		3,751,937
Prepaids	(3,559,035)		86,698
Accounts payable	(1,201,488)		6,429,414
Accrued expenses	(74,595)		(546,555)
Revenue payable	(2,937,584)		5,780,221
Net cash provided by operating activities	9,882,037		18,422,341
Investing Activities
Acquisition/development of oil and natural gas properties	(2,435,570)		(15,214,658)
Proceeds from sale of proved properties	14,274,194		—
Net cash provided by (used in) investing activities	11,838,623		(15,214,658)
Financing Activities
Repayment of line-of-credit	(27,701,000)		(7,450,000)
Debt issuance costs	(104,350)		—
Net cash used in financing activities	(27,805,350)		(7,450,000)
Net increase in cash and cash equivalents	(6,084,690)		(4,242,317)
Cash and cash equivalents at beginning of period	8,576,210		7,649,558
Cash and cash equivalents at end of period	$	2,491,520	$	3,407,241
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest	$	1,037,674	$	353,218
Non-cash Transactions:
Additions to oil and natural gas properties in accounts payable and accrued liabilities	$	(810,393)	$	(7,987,979)
See accompanying notes to consolidated financial statements.

5

DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

A. Nature of Business

Driftwood Energy Partners, LLC (the “Company”), is engaged in the exploration and development of oil and natural gas properties. The Company was organized as a Delaware Limited Liability Company (“LLC”) on September 27, 2017. The Company has three wholly owned subsidiaries Driftwood Energy Operating, LLC (“Operating”), Driftwood Energy Management, LLC (“Management”), and Driftwood Energy Intermediate, LLC (“Intermediate”). The Company’s offices are in Dallas, Texas.

B. Summary of Significant Accounting Policies

A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

Basis of Accounting and Principles of Consolidation

The accounts are maintained, and the consolidated financials have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of Operating, Management, and Intermediate. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect certain reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and assumptions.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents as of March 31, 2023 and December 2022.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consists principally of cash. The Company maintains deposits in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits.

Substantially all of the Company’s accounts receivable is due from either purchasers of crude oil and natural gas or participants in crude oil and natural gas wells which the Company serves as the operator. Generally, operators of crude oil and natural gas properties have the right to offset future revenues against unpaid charges related to operate wells. The Company’s receivables from purchasers are generally unsecured; however, credit losses to date have been minimal.

6

DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Concentrations of Credit Risk – continued

Oil and gas sales to six purchasers totaled approximately 100% of gross oil and natural gas revenues for quarter ended March 31, 2023, and year ended December 2022. Accounts receivable from these six purchasers was 100% of the Company’s accounts receivable as of March 31, 2023, and December 31, 2022.

Due to the nature of the markets for oil and natural gas, the Company does not believe the loss of any one purchaser would have a material adverse impact on the Company’s financial position, results of operations, or cash flows for any significant period of time.

Accounts Receivable

Accounts receivable are stated at amounts management expects to collect from outstanding balances. The Company’s accounts receivable are due from purchasers of oil and natural gas and amounts due from other interest holders. Oil and natural gas sales receivables related to these operations are generally unsecured. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. As of March 31, 2023 and December 31, 2022, no credit losses had occurred and an allowance for doubtful accounts was not recorded.

Oil and Natural Gas Properties

The Company follows the successful efforts accounting method for its oil and natural gas properties. Under this method, costs of acquiring properties, costs of drilling successful exploration wells, and development costs are capitalized. The costs of exploratory wells are initially capitalized pending a determination of whether proved reserves have been found. At the completion of drilling activities, the costs of exploratory wells remain capitalized if a determination is made that proved reserves have been found. If no proved reserves have been found, the costs of each of the related exploratory wells are charged to expense. In some cases, a determination of proved reserves cannot be made at the completion of drilling, requiring additional testing, and evaluation of the wells. The Company’s policy is to expense the costs of such exploratory wells if a determination of proved reserves has not been made within a twelve-month period after drilling is complete. Exploration costs such as geological, geophysical, and seismic costs are expensed as incurred, unless such costs relate to seismic surveys to further develop a proven area and then, those costs are capitalized.

Capitalized costs are depleted on a composite unit-of-production method based on proved oil and natural gas reserves on a field level basis.

The partial sale of a proved property within an existing field is accounted for as a normal retirement and no net gain or loss on divestiture activity is recognized as long as the treatment does not significantly affect the units-of-production depletion rate. The sale of a partial interest in an individual proved property is accounted for as a recovery of cost. A net gain or loss on divestiture activity is recognized in the accompanying statements of operations for all other sales of proved properties.

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Oil and Natural Gas Properties – continued

The costs of unproved properties are excluded from depletion until the properties are evaluated. All unevaluated properties are reviewed by management on an annual basis to determine whether or not proved reserves have been assigned to the properties or if impairment has occurred. There was no impairment as of March 31, 2023 and 2022.

The Company reviews its proved oil and natural gas properties for impairment whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset.

The Company can capitalize certain internal overhead and interest costs directly attributable to acquisition, exploration and development activities. Capitalized costs may not include any costs related to production, lease operating expense or similar activities. The Company did not capitalize any internal overhead or interest costs during the three months ended March 31, 2023 and 2022.

Other Property and Equipment

Other property and equipment are carried at cost. Major renewals and improvements are capitalized while expenditures for maintenance and repairs are expensed as incurred. The Company's other property and equipment policy requires all items under $2,000 to be expensed. Upon sale or abandonment, the cost of the equipment and related accumulated depreciation are removed from the accounts and any gain or loss is recognized. Depreciation is calculated using the straight-line method over the estimated useful lives ranging between three and five years.

The Company evaluates other property and equipment for potential impairment whenever indicators of impairment are present. Circumstances that could indicate potential impairment include significant adverse changes in industry trends and the economic outlook, legal actions, regulatory changes, and significant declines in utilization rates.

If it is determined that other property and equipment are potentially impaired, we perform an impairment evaluation by estimating the future undiscounted net cash flow from the use and eventual disposition of other property and equipment grouped at the lowest level at which cash flows can be identified. If the sum of the future undiscounted net cash flows is less than the net book value of the property, an impairment loss is recognized for the excess, if any, of the assets’ net book values over their estimated discounted fair values. As of March 31, 2023 and December 31, 2022 no impairment expense was recorded.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses include amounts payable from expenses incurred directly by the Company.

8

DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Asset Retirement Obligations

The Company recognizes an asset retirement obligation for legal obligations associated with the retirement of the Company’s oil and natural gas properties. Oil and natural gas producing companies incur such a liability upon acquiring or drilling a well. An asset retirement obligation (“ARO”) is recorded as a liability at its estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheets which is depreciated on a unit–of– production basis. Periodic accretion of the discount on asset retirement obligations is recorded as an expense in the accompanying statement of operations. See further discussion of AROs at Note E.

Member Receivable

Member receivables consist of notes receivable from the management members of the Company. These notes are classified as receivables within equity, as these notes represent a capital contribution to the Company. See Note G for further information.

Revenue Recognition

On January 1, 2019, the Company adopted ASU No. 2014–09, Revenue from Contracts with Customers (“Topic 606”), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. The Financial Accounting Standards Board (“FASB”) has also issued several amendments (ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20) clarifying different aspects of Topic 606. The Company implemented this standard using the modified retrospective method applied to contracts for the year ended December 31, 2019.

Oil, natural gas and natural gas liquids revenues are recognized upon the transfer of control of the products to a purchaser. Transfer of control typically occurs when the products are delivered to the purchaser, title or risk of loss has transferred and collectability of the revenue is reasonably assured. Revenue is recognized net of royalties due to third parties in an amount that reflects the consideration the Company expects to receive in exchange for those products. The Company’s oil production is primarily sold under market-sensitive contracts that are typically priced at a differential to a market index price or at purchaser posted prices for the producing area. For oil contracts, the Company generally records sales based on the net amount received. The Company’s natural gas production is primarily sold under market-sensitive contracts that are typically priced at a differential to the published natural gas index price for the producing area due to the natural gas quality and the proximity to major consuming markets. For natural gas contracts, the Company generally records sales at the wellhead or inlet of the gas processing plant as revenues net of transportation, gathering and processing expenses if the processor is the customer and there is no redelivery of commodities to the Company at the tailgate of the plant.

9

DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Revenue Recognition – continued

As a result of Topic 606 adoption, there were no significant changes to the timing of revenue recognized for sales of production.

Contract Balances

Customers are invoiced once the Company’s performance obligations have been satisfied. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. There are no significant judgments that significantly affect the amount or timing of revenue from contracts with customers. Accordingly, the Company’s oil and natural gas sales contacts do not give rise to material contract assets or contract liabilities. Accounts receivable from the sales of oil and natural gas are primarily from purchasers and from exploration and production companies that own interests in properties operated on behalf of the Company.

Performance Obligations

The Company applies the optional exemptions in Topic 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations.

Derivatives

The Company uses various financial instruments for non-trading purposes to manage and reduce price volatility and other market risks associated with its oil and natural gas production. These arrangements are structured to reduce the Company’s exposure to commodity price decreases, but they can also limit the benefit the Company might otherwise receive from commodity price increases. The Company’s risk management activity is generally accomplished through over-the-counter commodity derivative contracts with large financial institutions. The Company applies the provisions of the “Derivatives and Hedging” topic of the Accounting Standards Codification (“ASC”), which requires each derivative instrument to be recorded in the accompanying consolidated balance sheets at fair value.

If a derivative has not been designated as a hedge or does not otherwise qualify for hedge accounting, it must be adjusted to fair value through earnings. The Company elected not to designate its current portfolio of commodity derivative contracts as hedges for accounting purposes. Therefore, changes in fair value of these derivative instruments are recognized in earnings in the accompanying consolidated statements of operations.

At March 31, 2023, the Company’s derivatives were composed of the following:

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Derivatives - continued

Commodity price	Volume (Bbl/MMBTU)	Strike
Swaps (crude oil)
Jan – Dec 2024	75,950	$63.75
Swaps (natural gas)
Apr – Dec 2023	120,500	2.46
Jan – Dec 2024	191,800	3.15
Jan – Dec 2024	263,900	3.39
Call Options (crude oil)
Jan – Dec 2023	336,700	40.00 – 99.00
Jan – Dec 2024	217,700	50.00 – 89.50
Call Options (natural gas)
Apr – Dec 2023	140,500	2.00 – 12.00
Jan – Dec 2024	298,300	4.00 – 7.37
Basis Swaps (crude oil)
Apr – Dec 2023	528,700	73.55 – 79.48
Jan – Dec 2024	293,300	69.34 - 74.20
Basis Swaps (natural gas)
Apr – Dec 2023	1,388,996	0.06 – 3.72
Jan – Dec 2024	1,231,992	2.24 – 4.41

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies – continued

Derivatives – continued

At December 31, 2022, the Company’s derivatives were composed of the following:

Commodity price	Volume (Bbl/MMBTU)	Strike
Swaps (crude oil)
Jan – Mar 2023	7,008	$44.45
Jan – Dec 2024	75,950	63.75
Swaps (natural gas)
Mar – Dec 2023	127,100	2.46
Jan – Dec 2024	263,900	3.39
Jan – Dec 2024	298,700	(1.10)
Jan – Dec 2024	191,800	3.15
Call Options (crude oil)
Jan – Dec 2023	417,908	35.00 – 93.50
Jan – Dec 2024	217,350	50.00 – 89.50
Call Options (natural gas)
Feb – Dec 2023	200,000	2.00 – 3.01
WTI Diff Spread (crude oil)
Feb – Dec 2023	651,818	0.32
Jan – Dec 2024	293,300	0.22
WTI Diff Spread (natural gas)
Jan – Dec 2023	2,026,881	(1.76) – (0.31)
Jan – Dec 2024	933,292	(1.00)

Fair Value Measurement

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-tier hierarchy that is used to identify assets and liabilities measured at fair value. The hierarchy

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Fair Value Measurement – continued

focuses on the inputs used to measure fair value and requires that the lowest level input be used. The three levels defined are as follows:

•Level 1 — observable inputs that are based upon quoted market prices for identical assets or liabilities within active markets.

•Level 2 — observable inputs other than Level 1 that are based upon quoted market prices for similar assets or liabilities, based upon quoted prices within inactive markets, or inputs other than quoted market prices that are observable through market data for substantially the full term of the asset or liability.

•Level 3 — inputs that are unobservable for the particular asset or liability due to little or no market activity and are significant to the fair value of the asset or liability. These inputs reflect assumptions that market participants would use when valuing the particular asset or liability.

The Company’s derivatives consist of over–the–counter (“OTC”) contracts which are not traded on a public exchange. As the fair value of these derivatives is based on inputs using market prices obtained from independent brokers or determined using quantitative models that use as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third party pricing services, brokers and market transactions, the Company has categorized these derivatives as Level 2. The Company values these derivatives using the income approach using inputs such as the forward curve for commodity prices based on quoted market prices and prospective volatility factors related to changes in the forward curves. The Company’s estimates of fair value have been determined at discrete points in time based on relevant market data.

The following table presents assets that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets (Liabilities)
Oil and natural gas commodity contracts	$	—	$	(2,308,606)	$	—	$	(2,308,606)
	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets (Liabilities)
Oil and natural gas commodity contracts	$	—	$	(7,191,184)	$	—	$	(7,191,184)

13

DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Fair Value Measurement – continued

Our other financial instruments consist primarily of the cash and cash equivalents, trade and other receivables, accounts payable and accrued expenses. The carrying value of our trade and other receivables, accounts payable and accrued expenses approximates fair value due to their highly liquid nature, short term maturity, or competitive rates assigned to these financial statements.

Income Taxes

The Company is organized as a limited liability company and taxed as a partnership for federal income tax purposes. As a result, income or losses are taxable or deductible to the members rather than at the Company level; accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements. In certain instances, the Company is subject to state taxes on income arising in or derived from the state tax jurisdictions in which it operates.

State income tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more likely than not threshold, it is then measured to determine the amount of expense to record in the consolidated financial statements. The tax expense recorded would equal the largest amount of expense related to the outcome that is 50% or greater likely to occur. The Company classifies any potential accrued interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as operating expense.

Management of the Company has not taken a tax position that, if challenged, would be expected to have a material effect on the consolidated financial statements as of or for the quarter ended March 31, 2023 and 2022 and year ended December 31, 2022. The Company did not incur any penalties or interest related to its state tax returns during the quarter ended March 31, 2023 and 2022 and year ended December 31, 2022.

Under the new centralized partnership audit rules effective for tax years beginning after 2017, the Internal Revenue Service (“IRS”) assesses and collects underpayments of tax from the partnership instead of from each partner. The partnership may be able to pass the adjustments through to its partners by making a push-out election or, if eligible, by electing out of the centralized partnership audit rules.

The collection of tax from the partnership is only an administrative convenience for the IRS to collect any underpayment of income taxes including interest and penalties. Income taxes on partnership income, regardless of who pays the tax or when the tax is paid, is attributed to the partners. Any payment made by the partnership as a result of an IRS examination will be treated as a distribution from the partnership to the partners in the consolidated financial statements.

General and Administrative Expenses

General and administrative expenses include corporate expenses, accounting, legal and insurance.

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

B. Summary of Significant Accounting Policies - continued

Recent Accounting Pronouncement

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases. This update applies to any entity that enters into a lease, with some specified scope exemptions. Under this update, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. Entities will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.

The Company has only 1 real estate lease which qualifies under ASC 842. This lease is expiring in 2024. The Company has entered into a transaction to divest its assets of Driftwood Energy Operating, LLC on February 14, 2023 and intend to terminate this lease in 2023. The Company has evaluated that impact of this standard is immaterial on the financials and decided not to implement it.

C. Oil and Natural Gas Properties

The Company’s oil and natural gas properties consist of the following as of March 31, 2023 and December 31, 2022:

	2023		2022
Proved oil and natural gas properties	$	203,956,269	$	219,202,498
Unproved oil and natural gas properties	10,252,217		10,251,491
Accumulated depletion and impairment	(26,795,789)		(27,417,060)
Oil and natural gas properties, net	$	187,232,697	$	202,036,929

D. Other Property and Equipment

Other property and equipment consisted of the following as of March 31, 2023 and December 31, 2022:

	2023		2022
Office equipment	$	6,505	$	6,505
Office furniture	6,361		6,361
IT- Hardware	45,500		45,500
Less accumulated depreciation	(58,366)		(58,366)
Other property and equipment, net	$	—	$	—

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

E. Asset Retirement Obligations

Changes in the Company’s asset retirement obligations for the quarter ended March 31, 2023 and year ended December 31, 2022 are as follows:

	2023		2022
Asset retirement obligations at beginning of year	$	766,412	$	629,918
Additions during the year	—		122,767
Revisions	—		224,217
Liabilities settled	(7,397)		(252,680)
Accretion of discount	11,746		42,190
Asset retirement obligations at end of year	$	770,761	$	66,412

F. Line of Credit

The Company has a reserve-based lending facility with certain financial institutions with aggregate commitments totaling $100 million. The Company had an outstanding balance of $29,990,836 and

$58,000,000 as of March 31, 2023 and December 31, 2022. The borrowing base is periodically redetermined based on the proved oil and gas properties of the Company. The credit agreement is secured against a first lien on the Company’s oil and natural gas properties and other assets. Balances outstanding under the credit agreement bear interest at Eurodollar-based rate plus a margin ranging from 3.00% to 4.00%. The rate as of March 31, 2023 and December 31, 2022 was 1.97% and 5.53%, respectively. Principal and any accrued interest is due at maturity in April 2026. The line of credit is subject to restrictive debt covenants as defined in the credit agreement.

In January 2021, the Company also entered into a promissory note with a total borrowing capacity of

$30 million. The note has no recourse to the Company’s oil and natural gas properties and other assets. The company has an outstanding balance of $19,469,849 and $19,161,685 as of March 31, 2023 and December 31, 2022. Balances outstanding under the credit agreement bear interest at BSBY rate. The Company treats interest for this promissory note as paid-in-kind interest.

The Company has capitalized debt issuance costs of approximately $1,381,624, at March 31, 2023 and amortizes the debt issuance costs monthly, which is included in interest expense on the consolidated statements of operations.

Amortization expense for the three months ended March 31, 2023 and 2022 was approximately $88,298 and $19,132, respectively. Amortization expense for each of the succeeding years is as follows:

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

F. Line of Credit - continued

2023	$	280,092
2024	276,805
2025	276,805
2026	92,268
	$	925,970

G. Members’ Equity and Incentive Units

The equity of the Company is 100% owned by CEC Driftwood Holdings, LLC and certain members of management and employees of the Company. The equity members have made equity commitments to the Company pursuant to the Company’s limited liability company agreement. The balance of prior contributions of equity from equity members and receivables owed from equity members is included within Members' equity on the consolidated balance sheets.

Series C Units

The Company’s limited partnership agreement provides for the issuance of Incentive Units. The Incentive Units entitle the holder to participate in the net profits and cumulative returns of the Company, but are subject to various performance criteria and vesting requirements, as defined in the Company’s limited liability company agreement.

The Company implemented the provisions of FASB ASC Topic 710, Compensation – General, due to the issuance of these management incentive units. The Incentive Units are designed as a profits interest, and the Incentive Unit holders are entitled to an increased share of the distributable cash flow generated by the Company in the event that certain performance hurdles are met. The Incentive Units are accounted for consistent with requirements of ASC Topic 710 due to the payouts being consistent with profit sharing of the Company based on substantive terms of the instruments. Due to the nature of the Incentive Units, no value is attributed and no expense recognized at the date of issuance.

H. Transactions

In January 2023, the Company divested two wells in Upton County for $14.27 million. The Company recognized $1.64 million gain as a result of this transaction which is included in Gain on sale of assets on the statements of operations.

I. Commitments and Contingencies

Environmental Remediation

Various federal, state, and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company’s operations and the costs of its oil and natural gas exploration, development, and production operations.

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

I. Commitments and Contingencies - continued

The Company does not anticipate that it will be required in the near future to expend significant amounts in relation to the consolidated financial statements taken as a whole by reason of environmental laws and regulations, and appropriately no reserves have been recorded.

Legal Contingencies

In the course of its business affairs and operations, the Company is subject to possible loss contingencies arising from federal, state and local environmental, health and safety laws and regulations and third-party litigation. As of March 31, 2023, there are no matters which, in the opinion of management, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Operating Leases

The Company leases a building under a non-cancelable operating lease that expires in 2024.

Future fiscal year minimum payments under the non-cancelable operating lease consisted of the following at March 31, 2023:

2023	$	84,810
2024	47,825
Total minimum lease payments	$	132,635

When the Company enters into an operating lease that contains a period where there are free or reduced rents, or rent increases throughout the lease term, the Company recognizes rent expense on a straight- line basis over the term of the lease. Deferred rent as of March 31, 2023 and December 31, 2022 was $0. Rent expense for the three months ended March 31, 2023 and year ended December 31, 2022 was approximately $38,255 and $147,000, respectively, and is included in general and administrative expense in the accompanying consolidated statements of operations.

Risk and Uncertainties

The Company’s revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which depend on numerous factors beyond its control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global political environment, regulatory developments, and competition from other energy sources. Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the future.

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DRIFTWOOD ENERGY PARTNERS, LLC

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)

J. Subsequent Events

In preparing the accompanying consolidated financial statements, management has evaluated all subsequent events and transactions for potential recognition or disclosure through May 31, 2023 the date the consolidated financial statements were available for issuance.

On February 14, 2023, the Company entered into a purchase and sale agreement to sell the assets of Driftwood Energy Operating, LLC. This transaction was closed on April 3, 2023. At closing, the Company received $104.0 million in cash and 1,578,948 shares of purchaser’s common stock. From the cash proceeds, $49.7 million was used to pay down the remaining outstanding balances on the Company’s lines of credit, $52.6 million was used to pay an equity distribution to the members in accordance with the Company’s limited liability company agreement, and $1.7 million was retained to for general corporate purposes. At closing, the purchaser also funded a remaining balance of $16.4 million to an escrow account, which may be released to the Company over the subsequent twelve months, subject to the terms of the purchase and sale agreement.

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