{"url_path":"/sec/spnd/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 Management's Discussion and Analysis of Financial Condition","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-20","source_url":"https://www.sec.gov/Archives/edgar/data/867038/0001017386-26-000075-index.html","accession_number":"0001017386-26-000075","cik":"0000867038","ticker":"SPND","issuer_name":"SPINDLETOP OIL & GAS CO","edgar_url":"https://www.sec.gov/Archives/edgar/data/867038/0001017386-26-000075-index.html","primary_entity_key":"0000867038","primary_entity_name":"SPINDLETOP OIL & GAS CO"},"word_count":3137,"has_tables":true,"body_markdown":"**Item 2. - Management's Discussion and Analysis of Financial Condition\nand**\n\n**Results of Operations**\n\n \n\n**WARNING CONCERNING FORWARD LOOKING STATEMENTS**\n\n \n\nThe following discussion should be read in conjunction with the financial\nstatements and notes thereto appearing elsewhere in this report.\n\n \n\nThis Report on Form 10-Q may contain forward-looking statements within the\nmeaning of the federal securities laws, principally, but not only, under the caption “Management’s Discussion and Analysis\nof Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which\nmanagement may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information\ncurrently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,”\n“may,” “might,” “plan,” “estimate,” “project,” “should,” “will,”\n“result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking\nstatements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which\nmay be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these\nrisks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated,\nestimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are\nnot guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim\nany responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly,\ninvestors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are\nmade, to anticipate future results or trends.\n\n \n\nSome of the risks and uncertainties that may cause our actual results, performance,\nor achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the factors\nlisted and described at Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K, which investors should review.\nThere have been changes to the risk factors previously described in the Company’s Form 10-K. for the fiscal year ended December\n31, 2025 (the “Form 10-K”), including significant global economic and other global factors occurring during 2025 which are\ndescribed in the following paragraphs.\n\n \n\n \n\n10\n\n \n\n \n\n \n\nPrices for oil and natural gas fluctuate widely due to a number of factors\nthat are beyond our control. Declines in oil and natural gas prices significantly affect our financial condition and results of operations**.**\nOur revenues, profitability and cash flow are highly dependent upon the prices we realize from the sale of oil, natural gas and NGLs.\nHistorically, the markets for these commodities are very volatile. Prices for oil, natural gas and NGLs can move quickly and fluctuate\nwidely in response to a variety of factors that are beyond our control. These factors include, among others:\n\n \n\n·the duration and economic and financial impact of epidemics,\npandemics or other public health issues;\n\n·changes in regional, domestic and foreign supplies of, and\nconsumer and industrial/commercial demand for oil and natural gas., as well as perceptions of supply of, and demand for,\noil and natural gas generally;\n\n·domestic and international drilling activity;\n\n·the price and quantity of foreign imports;\n\n·anticipated future prices of oil and natural gas, alternative\nfuels and other commodities;\n\n·the amount of exports from the U.S.;\n\n·the level of global and U.S. inventories and reserves;\n\n·weather conditions and seasonal trends;\n\n·natural disasters and other extraordinary events;\n\n·U.S. and worldwide political and economic conditions, including\nbut not limited to, the imposition of tariffs or trade or other economic sanctions, including political instability or armed conflict\nand related sanctions including, but not limited to, the conflicts in the Middle East, Ukraine and Iran, and political instability in\nVenezuela;\n\n·technological advances affecting energy consumption and energy\nsupply;\n\n·domestic and foreign governmental regulations and taxation;\n\n·the strength or weakness of the U.S. dollar to other currencies;\n\n·the actions of other oil producing and exporting nations,\nincluding the Organization of Petroleum Exporting Countries;\n\n·the availability, proximity, cost, and capacity of appropriate\npipeline infrastructure, treating, transportation, gathering, processing, compression, storage, and refining and export facilities;\n\n·the price and availability of, and demand for, competing\nenergy sources, including alternative energy sources;\n\n·the effect of worldwide energy conservation measures, alternative\nfuel requirements and climate change-related legislation, policies, initiatives and developments;\n\n·technological\nadvances and consumer and industrial/commercial behavior, preferences and attitudes, in each case affecting energy generation, transmission,\nstorage and consumption;\n\n·the nature and extent of governmental regulation, including\nenvironmental and other climate change-related regulation, regulation of financial derivative transactions and hedging activities, tax\nlaws, regulations and laws, and regulations with respect to the import and export of oil, and natural gas and related commodities:\n\n·inflation and ability to acquire critical material, equipment\nor services in a timely or cost effective manner;\n\n·the level and effect of trading in commodity futures markets,\nincluding trading by commodity price speculators and others; and\n\n·the availability of capital or level of hedging across the\nenergy industry in the U.S. and internationally.\n\n  \n\nThe above-described factors and the volatility of commodity prices make\nit difficult to predict oil and natural gas prices in 2026 and thereafter. As a result, there can be no assurance that the prices for\noil and/or natural gas will sustain, or increase from, their current levels, nor can there be any assurance that the prices for oil and/or\nnatural gas will not decline. The Company continues to assess and monitor the impact of these factors and consequences on the Company\nand its operations.\n\n \n\n \n\n11\n\n \n\n \n\n \n\nOur cash flows, financial condition and results of operations depend to\na great extent on prevailing commodity prices. Accordingly, substantial and extended declines in commodity prices can materially and\nadversely affect the amount of cash flow we have available for our capital expenditures and operating costs; the terms on which we can\naccess the credit and capital markets; our results of operations; and our financial condition. As a result, the trading price of our\ncommon stock may be materially and adversely affected. Lower commodity prices can also reduce the amount of oil and natural gas that\nwe can produce economically. Substantial and extended declines in the prices of these commodities can render uneconomic a portion of\nour exploration and development projects, resulting in our having to make downward adjustments to our estimated reserves and also possibly\nshut in or plug and abandon certain wells. In addition, significant prolonged decreases in commodity prices may cause the expected future\ncash flows from our properties to fall below their respective net book values, which would require us to write down the value of our\nproperties. Such reserve write-downs and asset impairments can materially and adversely affect our results of operations and financial\nposition and, in turn, the trading price of our common stock.\n\n \n\nRising inflation and other uncertainties regarding the global economy, financial\nenvironment, and global conflict could lead to an extended national or global economic recession. A slowdown in economic activity caused\nby a recession would likely reduce national and worldwide demand for oil and natural gas and result in lower commodity prices. Prolonged,\nsubstantial decreases in oil and natural gas prices would likely have a material adverse effect on the Company’s business, financial\ncondition, and results of operations, and could further limit the Company's access to liquidity and credit and could hinder its ability\nto satisfy its capital requirements.\n\nIn the past several years, capital and credit markets have experienced\nvolatility and disruption. Given the levels of market volatility and disruption, the availability of funds from those markets may diminish\nsubstantially. Further, arising from concerns about the stability of financial markets generally and the solvency of borrowers specifically,\nthe cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards,\nor altogether ceased to provide funding to borrowers.\n\nDue to these potential capital and credit market conditions, the Company\ncannot be certain that funding will be available in amounts or on terms acceptable to the Company. The Company is evaluating whether current\ncash balances and cash flow from operations alone would be sufficient to provide working capital to fully fund the Company's operations.\nAccordingly, the Company is evaluating alternatives, such as joint ventures with third parties, or sales of interest in one or more of\nits properties. Such transactions, if undertaken, could result in a reduction in the Company's operating interests or require the Company\nto relinquish the right to operate the property. There can be no assurance that any such transactions can be completed or that such transactions\nwill satisfy the Company's operating capital requirements. If the Company is not successful in obtaining sufficient funding or completing\nan alternative transaction on a timely basis on terms acceptable to the Company, the Company would be required to curtail its expenditures\nor restructure its operations, and the Company would be unable to continue its exploration, drilling, and recompletion program, any of\nwhich would have a material adverse effect on its business, financial condition, and results of operations.\n\n \n\nA negative shift in some of the public’s attitudes toward the oil\nand natural gas industry could adversely affect the Company’s ability to raise debt and equity capital. Certain segments of the\ninvestment community have developed negative sentiments about investing in the oil and natural gas industry. Recent equity returns in\nthe sector versus other industry sectors have led to lower oil and natural gas representation in certain key equity market indices. In\naddition, some investors, including investment advisors and certain wealth funds, pension funds, university endowments and family foundations,\nhave stated policies to disinvest in the oil and natural gas sector based on their social and environmental considerations. Certain other\nstakeholders have also pressured commercial and investment banks to halt financing oil and natural gas production and related infrastructure\nprojects. Such developments, including environmental, social and governance (“ESG”) activism and initiatives aimed at limiting\nclimate change and reducing air pollution, could result in downward pressure on the stock prices of oil and natural gas companies. The\nCompany’s stock price could be adversely affected by these developments. This may also potentially result in a reduction of available\ncapital funding for potential development projects, impacting the Company’s future financial results.\n\n \n\n12\n\n \n\n \n\nThe Company faces various risks associated with increased negative attitudes\ntoward oil and natural gas exploration and development activities. Opposition to oil and natural gas drilling and development activities\nhas been growing globally and is expanding in the United States. Companies in the oil and natural gas industry are often the target of\nefforts from both individuals and nongovernmental organizations regarding safety, human rights, climate change, environmental matters,\nsustainability, and business practices. Anti-development groups are working to reduce access to federal and state government lands and\ndelay or cancel certain operations such as drilling and development along with other activities. Opposition to oil and natural gas activities\ncould materially and adversely impact the Company’s ability to operate our business and raise capital.\n\n \n\nThere could be adverse legislation which if passed, would significantly\ncurtail our ability to attract investors and raise capital. Proposed changes in the Federal income tax laws which would eliminate or reduce\nthe percentage depletion deduction and the deduction for intangible drilling and development costs for small independent producers will\nsignificantly reduce the investment capital available to those in the industry as well as our Company. Lengthening the time to expense\nseismic costs will also have an adverse effect on our ability to explore and find new reserves.\n\n \n\n \n\nOther factors that may affect the demand for oil and natural gas, and therefore\nimpact our results, include technological improvements in energy efficiency; seasonal weather patterns; increased competitiveness of,\nor government policy support for, alternative energy sources; changes in technology that alter fuel choices, such as technological advances\nin energy storage that make wind and solar more competitive for power generation; changes in consumer preferences for our products, including\nconsumer demand for alternative fueled or electric transportation or alternatives to plastic products; and broad-based changes in personal\nincome levels.\n\n \n\nCommodity prices and margins also vary depending on a number of factors\naffecting supply. For example, increased supply from the development of new oil and gas supply sources and technologies to enhance recovery\nfrom existing sources tend to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand.\n\n \n\nOther sections of this report may also include suggested factors that could\nadversely affect our business and financial performance. Moreover, we operate in an extremely competitive and rapidly changing environment.\nNew risks may emerge from time to time, and it is not possible for management to predict all such matters; nor can we assess the impact\nof all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially\nfrom those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking\nstatements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and\ncurrent reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through\nForms 8-K or otherwise.\n\n \n\n13\n\n \n\n \n\n**  **\n\n**Results of Operations**\n\n** **\n\n** **\n\nThree months ended March 31, 2026, compared to the three months ended\nMarch 31, 2025\n\n \n\nOil and gas revenues for the first three months of 2026 were $1,181,000,\nas compared to $1,052,000 for the same period in 2025, an increase of approximately $129,000 or 12.3%.\n\n \n\nOil sales for the first three months of 2026 were approximately $576,000\ncompared to approximately $533,000 for the first three months of 2025, an increase of approximately $43,000 or 8.1%. Oil sales volumes\nfor the first three months of 2026 were approximately 8,346 bbls, compared to approximately 6,734 bbls during the same period in 2025,\nan increase of approximately 1,612 bbls, or 23.9%,\n\n \n\nAverage oil prices received were $64.79 per bbl in the first three months\nof 2026 compared to $72.85 per bbl in the first three months of 2025, a decrease of approximately $8.06 per bbl or 11.1%.\n\n \n\nNatural gas revenues for the first three months of 2026 were $605,000 compared\nto $519,000 for the same period in 2025, an increase of approximately $86,000 or 16.6%. Natural gas sales volumes for the first three\nmonths of 2026 were approximately 144,000 mcf compared to approximately 145,000 mcf during the first three months of 2025, a decrease\nof approximately 1,000 mcf or 0.7%.\n\n \n\nAverage gross natural gas prices received were $4.47 per mcf in the first\nthree months of 2026 as compared to $3.58 per mcf in the same time period in 2025, an increase of approximately $0.89 per mcf or 24.7%.\n\n \n\nRevenues from lease operations were $41,000 in the first three months of\n2026 compared to $43,000 in the first three months of 2025, a decrease of approximately $2,000 or 4.7%. Revenues from lease operations\nare derived from field supervision charged to operated leases along with operator overhead charged to operated leases.\n\n \n\nRevenues from gas gathering, compression and equipment rental for the first\nthree months of 2026 were $24,000 compared to $18,000 for the same period in 2025, an increase of approximately $6,000 or 33.3%. These\nrevenues are derived from gas volumes produced and transported through the Company owned gas gathering systems.\n\n \n\nReal estate revenue was approximately $64,000 during the first three months\nof 2026 compared to $71,000 for the first three months of 2025, a decrease of approximately $7,000, or 9.9%.\n\n \n\nInterest income was $168,000 during the first three months of 2026 as compared\nto $208,000 during the same period in 2025, a decrease of approximately $40,000 or 19.2%. Interest income is due to the Company investing\nits funds in both long-term and short-term certificates of deposit accounts paying higher rates of interest than those received in money\nmarket accounts.\n\n \n\nOther revenues for the first three months of 2026 were $11,000 as compared\nto $11,000 for the same period in 2025.\n\n \n\nLease operating expenses in the first three months of 2026 were approximately\n$204,000 as compared to $290,000 in the first three months of 2025, a net decrease of approximately $86,000, or 29.7%.\n\n \n\nProduction taxes, gathering and marketing expenses in the first three months\nof 2026 were approximately $158,000 as compared to $141,000 for the first three months of 2025, an increase of approximately $17,000 or\n12.1%.\n\n \n\nPipeline and rental expenses for the first three months of 2026 were\n$3,000 compared to $13,000 for the same time period in 2025, a decrease of $10,000 or 76.9%.\n\n \n\nReal estate expenses in the first three months of 2026 were approximately\n$27,000 compared to $25,000 during the same period in 2025, an increase of approximately $2,000 or 8%.\n\n \n\n14\n\n \n\n \n\nDepreciation, depletion, and amortization expenses for the first three months\nof 2026 were $96,000 as compared to $46,000 for the same period in 2025, an increase of $50,000, or 108.7%. Amortization of the amount\nfor the full cost pool for the first three months of 2026 was $68,000 compared to $17,000 for the same period of 2025. The Company re-evaluated\nits proved oil and natural gas reserve quantities as of December 31,2025. This re-evaluated reserve base was reduced for oil and gas reserves\nthat were produced or sold during the first three months of 2026 and adjusted for newly acquired reserves or for changes in estimated\nproduction curves and future price assumptions. A year-to-date depletion rate of 6.162% for the three months ended 2026 was applied to\nthe Company’s full cost pool of un-depleted capitalized oil and natural gas properties compared to a year-to-date rate of 2.266%\nfor the same period in 2025.\n\n \n\nThere was no additional adjustment to Asset Retirement Obligation (“ARO”)\nexpense for the first three months of 2026 as compared to no adjustment for the same period in 2025. The ARO expense is calculated to\nbe the discounted present value of the estimated future cost to plug and abandon the Company’s wells.\n\n \n\nGeneral and administrative expenses for the first three months of 2026 were\napproximately $712,000 as compared to approximately $721,000 for the same period of 2025, a decrease of approximately $9,000 or 1.3%.\n\n  \n\n**Financial Condition and Liquidity**\n\n \n\nThe Company's operating capital needs, as well as its capital spending program\nare generally funded from cash flow generated by operations. Because future cash flow is subject to several variables, such as the level\nof production and the sales price of oil and natural gas, the Company can provide no assurance that its operations will provide sufficient\ncash to maintain current levels of capital spending. Accordingly, the Company may be required to seek additional financing from third\nparties to fund its exploration and development programs."}