COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2026

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Lease Agreements

Currently, the Company has one operating sublease for office space that requires ASC Topic 842 treatment, discussed below.

The Company’s leases typically do not provide an implicit rate. Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information available at the commencement date. The Company’s incremental borrowing rate would reflect the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. However, at the time of implementation, the Company did not maintain debt at the time, and in order to apply an appropriate discount rate, the Company used a borrowing rate obtained from a financial institution at which it maintains banking accounts.

In December 2022, the Company entered into a lease agreement for approximately 5,200 square feet of office space in Houston, Texas, that commenced on September 1, 2023, which expires on February 28, 2027. The remaining monthly payments are approximately $16,000 through the end of the lease. The Company paid a security deposit of $14,700.

Supplemental cash flow information related to the Company’s operating office sublease is included in the table below (in thousands):

	Three Months Ended
	March 31, 2026
Cash paid for amounts included in the measurement of lease liabilities	$	48

Supplemental balance sheet information related to operating leases is included in the table below (in thousands):

	March 31, 2026
Operating lease – right-of-use asset	$	169

Operating lease liabilities - current	$	170
Operating lease liabilities - long-term		-
Total lease liability	$	170

The weighted-average remaining lease term for the Company’s operating lease is 0.9 years as of March 31, 2026, with a weighted-average discount rate of 7.90%.

Lease liability with enforceable contract terms that have greater than one-year terms are as follows (in thousands):

Remainder of 2026	$	144
2027		32
Thereafter		-
Total lease payments		176
Less imputed interest		(6	)
Total lease liability	$	170

Leasehold Drilling Commitments

The Company’s oil and gas leasehold acreage is subject to expiration of leases if the Company does not drill and hold such acreage by production or otherwise exercises options to extend such leases, if available, in exchange for payment of additional cash consideration. In the D-J Basin Asset, 16,138 net acres are set to expire during 2026 (net to our direct ownership interest only), with 2,133 and 638 net acres set to expire for the years ending December 31, 2027 and 2028 respectively, and 8,081 net acres thereafter, if we fail to meet drilling commitments or obtain term assignment extensions (net to our direct ownership interest only). In the PRB, in the Powder River Basin Asset, 4,822 net acres are set to expire during 2026, with 34,999 and 15,828 net acres set to expire for the years ending December 31, 2027 and 2028, respectively. In the Permian Basin Asset only no net acres are set to expire for the year ending December 31, 2026, (net to our direct ownership interest only), all of the remaining acreage is currently held by production.

Other Commitments

Although the Company may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, the Company is not currently a party to any material legal proceeding. In addition, the Company is not aware of any material legal or governmental proceedings against it or contemplated to be brought against it.

As part of its regular operations, the Company may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters.

Although the Company provides no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.

Milnesand Sale Dispute and Tilloo Note Default and Litigation

On November 9, 2023, in accordance with the sale of our then wholly-owned subsidiary EOR Operating Company (“EOR”) to Tilloo Exploration and Production LLC (“Tilloo”), the Company entered into a five-year secured promissory note (the “Note”) with Tilloo, bearing interest at 10% per annum, with no payments due until January 8, 2025, and fully-amortized payments due monthly over the remaining four years of the term thereafter until maturity. The Note contains customary events of default and is secured by a lien over all the assets and capital shares of EOR created under a Security Agreement, a Security Agreement (Pledge of Corporate Securities), and a Mortgage entered into by and between the Company and Tilloo.

Tilloo failed to make its initial installment payment on January 8, 2025, and has not made any subsequent payments as of December 31, 2025. The Company issued a notice of default under the Note to Tilloo in mid-January 2025, and sought to work with Tilloo into April 2025, in an effort to either restructure the Note or arrange for the sale of the assets securing the same to an unaffiliated third-party buyer, with proceeds of such sale to be applied toward repayment of the Note. On September 18, 2025, Tilloo filed a civil lawsuit against the Company in the District Court of Harris County, Texas, alleging breach of contract, fraudulent inducement, and negligent misrepresentation. In November 2025, the Company issued to Tilloo a notice of acceleration and demand for payment under the Note and also filed a counterclaim against Tilloo for breach of contract seeking full recovery under the Note. In February 2026, the Company filed a motion for summary judgement with respect to Tilloo’s claims and the Company’s counterclaims asserted against Tilloo for breach of contract, which motion is currently pending before the Court. On May 4, 2026, Tilloo amended its lawsuit to include a statutory fraud claim and punitive damages claim and dropped its breach of contract claim. Discovery is ongoing, with trial set for March 1, 2027. The Company does not anticipate that the Company will incur any material losses related to this matter.

Phoenix Litigation

Upon the consummation of the Mergers, effective October 31, 2025, a wholly-owned subsidiary of NPOG, Navigation Powder River, LLC (“NPRLLC”), became an indirect wholly-owned subsidiary of the Company. On July 31, 2025, NPRLLC and Phoenix Energy One, LLC (“Phoenix”) entered into that certain Purchase and Sale Agreement (the “Phoenix PSA”) whereby NPRLLC agreed to sell to Phoenix certain oil and gas properties located in Campbell and Converse Counties, Wyoming. On September 10, 2025, NPRLLC filed a Petition against Phoenix in the Eleventh Business District Business Court of Texas (Navigation Powder River, LLC v. Phoenix Energy One, LLC, Eleventh Business District, Texas Business Court, Houston, TX) alleging a breach of contract by Phoenix Energy for its failure to consummate the transactions contemplated by the Phoenix PSA. The Company intends to vigorously pursue its claims in an effort to secure a favorable ruling from the court. If the matter is ultimately not resolved in the Company’s favor, the Company estimates that its potential loss will be the approximately $7.7 million purchase price consideration due from Phoenix under the Phoenix PSA, provided that NPRLLC would retain the oil and gas properties in full.

PEDEVCO CORP 10-Q