PHXE-P

Phoenix Energy One, LLC - 10-Q Summary (Q2 2026)

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended June 30, 2026. Phoenix Energy One, LLC (the "Company") is an oil and gas exploration and production company operating primarily in the Williston, Uinta, Permian, Denver-Julesburg, and Powder River Basins. The Company executes a three-pronged strategy: direct drilling operations (via PhoenixOp), acquisition of royalty assets, and acquisition of non-operated working interests. As of June 30, 2026, the Company had 147 producing wells in service.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 147.8% quarter-over-quarter (Q2 2026 vs. Q2 2025) and 152.0% year-to-date. This was driven by a 148.7% increase in product sales and a 250.5% increase in purchased crude oil sales.
• Production Volume: Average daily production rose 66.1% to 39,574 Boe/d in Q2 2026, compared to 23,822 Boe/d in Q2 2025. The Company produced 3.7 million barrels of crude oil in the quarter, its highest quarterly volume to date.
• Profitability Volatility: While Q2 2026 reported net income of $106.0 million, the six-month period ended with a net loss of $34.1 million. This discrepancy is primarily due to a $177.2 million unrealized loss on derivatives recognized in the first half of 2026, compared to a $10.8 million gain in the same period in 2025.
• Debt Expansion: Total outstanding debt increased from $1.53 billion at year-end 2025 to $1.82 billion at June 30, 2026, reflecting continued capital raising to fund aggressive drilling programs.

Guidance, Outlook, and Risks

• Capital Plan: The Company expects to drill 70 to 110 gross wells and participate in 220 to 320 gross non-operated wells over the next 12 months, requiring estimated capital expenditures of $710.0 million to $810.0 million.
• Liquidity: The Company reported negative working capital of approximately $411.2 million. Management believes it has sufficient funds to meet obligations for the next 12 months through operating cash flows and continued debt issuances. Since the balance sheet date, the Company raised an additional $92.5 million in debt.
• Covenant Waivers: On August 10, 2026, the Company obtained a waiver for noncompliance with its current ratio covenant and a swap agreement covenant under the Fortress Credit Agreement, attributed to accelerated well completion expenditures.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2026, due to material weaknesses identified in the 2025 audit, including inadequate segregation of duties and ineffective IT general controls. Remediation efforts are underway.
• Market Risk: The Company has significant exposure to commodity price volatility. As of June 30, 2026, approximately 14.2 million barrels of anticipated oil production through 2028 are hedged via swaps, collars, and call options.

Investor Verification Checklist

• Derivative Valuation: Verify the impact of the $177.2 million unrealized derivative loss on the six-month net loss and assess the sensitivity of future earnings to commodity price fluctuations.
• Liquidity Position: Confirm the Company's ability to service $1.82 billion in debt and meet $173.5 million in debt maturities due within 12 months given the negative working capital position.
• Internal Control Remediation: Monitor progress on remediation of material weaknesses in internal controls over financial reporting to ensure future financial statement reliability.
• Capital Expenditure Execution: Track the execution of the $710M-$810M capital plan against actual cash burn and production growth rates.
• Covenant Compliance: Review future compliance with the Fortress Credit Agreement covenants, particularly the current ratio and asset coverage ratios, following the recent waiver.