EROK 10-K & 10-Q changes, risk factors and insider trading

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors disclosed under the heading “Risk Factors” in the Prospectus. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in the Prospectus.

The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with, our Financial Statements and notes thereto in Part I, Item 1. “Financial Statements” of this Quarterly Report. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil and natural gas, production volumes, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this Quarterly Report, particularly in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward LookingForward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, actual results may differ materially from those contained in our forward-looking statements. We assume no obligation to publicly update any of these forward-looking statements except as otherwise required by applicable law.

The historical financial information prior to May 15, 2026 in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects only the historical financial results of the Predecessor,Predecessor and does not give pro forma effect to the DE Flow Contribution, the Shallow Valley Contribution, the Up-C Reorganization,Reorganization (as defined herein), or the IPO (as defined herein), each of which is described further below. Each of the DE Flow Contribution, the Shallow Valley Contribution, the Up-C Reorganization,IPO and the IPOother transactions in the Corporate Reorganization (as defined herein) is reflected in the historical financial information in this “”Management’s Discussion and Analysis of Financial Condition and Results of Operations” solely from and after its respective date of completion.

Over the last several years, the global economy and the oil and natural gas industry have experienced considerable volatility driven by a range of macroeconomic and geopolitical factors.factors, Globalincluding global conflicts, ongoing ambiguity surrounding tariffs and international trade policies, domestic political developments, elevated inflation,inflation and higher interest rates and changing costs of capitalcapital. More recently, the war in the Middle East involving the U.S., Israel and Iran, as well as other countries in the region, the situation in Venezuela, OPEC+ actions and evolving global supply-demand fundamentals have influenceddriven businesssignificant activityvolatility acrossin commodity prices. From December 31, 2024 to December 31, 2025, average WTI oil prices decreased approximately 14.7%, while average Henry Hub natural gas prices increased approximately 60.2%. During the energyfirst sector,quarter contributingof 2026, escalation of the conflict in the Middle East and related disruptions to broaderglobal economicshipping uncertaintyroutes thatcaused continuesoil prices to affectrise short-termsharply, with the WTI posted price exceeding $94.0 per barrel as a result of production shut-ins, shipping interruptions and long-termother developmentuncertainties. decisionsAs of energyJune companies.30, 2026, the WTI posted price has retreated to approximately $70.6 per barrel.

DespiteWe thealso significantexpect volatilitya innumber theof globaltrends oilto market,support wecontinued believe the outlook for energy and infrastructure development, particularlyinvestment in the Permian Basin, remains favorable.Basin. The focus on domestic energy independence is promoting continued activity in the U.S., which is expected to drive significant investment in infrastructure, especially in the prolific Permian Basin where our land and assets are located. U.S. energy policy developments, including Executive Orders promoting domestic energy production through expedited infrastructure approvals and reduced barriers to resource development, may further support investment and operational activity in the basin.Permian Basin. At the same time, federal incentives for alternative and renewable energy technologiestechnologies, together with growing demand for power generation, data centers and other digital infrastructure, may accelerate the broader energy transition.transition and create additional demand for large, contiguous tracts of land. Many of these emerging energy and infrastructure initiatives, similar to traditional oil and gas development, require substantial surface acreage and related infrastructure, positioning companies with significant land and infrastructure assetsassets, such as us, to benefit from both traditional and renewableemerging energy sources.

FirstSecond Quarter Results

Significant financial and operating highlights of the Predecessor for the first quarter ended MarchJune 31,30, 2026 and 2025 include:

Total revenues of $23.1$41.5 million, an increase of 226.2%74.0% as compared to the firstsecond quarter of 2025;

Net incomeloss of $3.4$37.5 million, compared to a net loss of $1.1$70.8 million in the firstsecond quarter of 2025;

AdjustedNet EBITDAloss Margin(1)margin of 59.9%,90.4%, compared to 45.5%a net loss margin of 296.7% in the firstsecond quarter of 2025;

Free Cash Flow(1) of $13.0$22.4 million, compared to $2.2$(0.2) million in the firstsecond quarter of 2025; and Free Cash Flow Margin(1) of 56.3%,54.0%, compared to 30.6%-0.8% in the firstsecond quarter of 2025.

We generate revenue from multiple sources, including the use of our surface acreage, the sale of water and other resources from our land and royalties from our integrated water handlingmanagement infrastructure.system. The fees, royalty rates, payment structures and other commercial terms under our contracts are negotiated individually, reflecting the specific surface use, type of resource development, anticipated operational intensity and expected production or extraction volumes associated with each agreement. Further, the amount and composition of revenue we receive from a particular customer may vary significantly from period to period based on the nature, timing and scope of that customer’s activities on our land. We are focused on actively growing revenue from the use of our surface acreage and the sale of resources from our land. We believe that our largely fee-based SUAs,surface use agreements (each an “SUA”), as well as our strong base of royalty fees, support cash flow stability through commodity price cycles.

The table below summarizes revenues of the Predecessor on a historical basis for the periods indicated:

Resource Sales and Royalties

Surface Use RoyaltiesRelated and RevenueRevenues

Under the Produced Water Recycling Rights Agreement (the "“Hydrosource Recycling Agreement"”) with Hydrosource Logistics, LLC ("“Hydrosource"”) that was entered into in connection with the IPO, we receive a feeroyalty for each barrel of recycled water Hydrosource sells on our land and within certain designated areas outside of our land, and Hydrosource is required to generate minimum annual royalty revenue of $5.0 million from its activities during the initial five years of the agreement. The Company and Hydrosource have access to supplemental off-ranch water (either recycled or brackish water), and the Company’s surface pipeline has the capacity to move approximately 100 MBbls/d, or approximately 36.5 MMBbls per year, of off-ranch water from Texas to its land in New Mexico. Under the Hydrosource Recycling Agreement, we may designate to Hydrosource the rights to manage certain of our customers'customers’ brackish water demand for which we would expect to receive a royalty payment. Additionally, Hydrosource has a long-term agreement that provides it with access to up to 3 MMBbls/d of produced water for treatment and recycling within certain designated areas in the Permian Basin (the “Hydrosource Recycled Water Supply Agreement"”).

Additionally, pursuant to the Water System Management Agreement ("“DE Flow WSMA"”) with DEF Operating, LLC ("DEF Operating") that was entered into in connection with the IPO, we receive revenue from our integrated water infrastructure system in the Midland Basin, which is operated by DEF Operating, LLC, an affiliate of Double Eagle Energy Holdings IV, LLC. The operating costs and maintenance expenses of these water infrastructure assets, which include produced water gathering systems, SWDs, water sourcing and delivery pipelines and recycling facilities, are primarily borne by DEF Operating, with minimal operating costs or capital expenditures borne by us.

General and Administrative Expenses. General and administrative expenses consist primarily of corporate personnel costs, including salaries, bonuses, service fees, payroll taxestaxes, employee-related insurance, and employee-relatedshare-based insurance.compensation. These expenses also include professional services such as legal, consulting and accounting fees, as well as information technology and software costs that support our corporate functions. Office-related expenses, such as rent, office equipment rentals, supplies, communications, bank charges and dues and subscriptions, represent an additional component of our administrative cost structure. We also incur various commercial insurance costs, including general liability, directors and officers insurance, umbrella liability, workers’ compensation, auto insurance and property insurance, along with other corporate overhead, such as marketing, travel, meals, vehicle lease expenses and miscellaneous administrative expenses. These costs reflect the resources required to manage our business, comply with regulatory and public company requirements and support the organizational infrastructure needed to execute our strategic objectives. Share-based compensation expense includes shares issued to certain members of management upon the completion of the IPO (“IPO Bonuses”), which are equity-classified awards and measured at fair value on the grant date, and RSUs issued under our long-term incentive plan (“LTIP”), which are recorded on grant date at fair value. See “Key Factors Affecting Comparability and Our Results of Operations—Long-Term Incentive Plan” below and Note 10—Share-Based Compensation to our unaudited condensed consolidated financial statements for additional information regarding share-based compensation.

Key Factors Affecting Comparability and our Results of Operations

Our results of operations are substantially dependent on the level of oil and natural gas exploration, development and production activity on and around our surface acreage in the Permian Basin, including our properties in the Delaware Basin in New Mexico and the Midland Basin in Texas, which activity is significantly influenced by prevailing and expected commodity prices. Although we are not an E&P company and have limited physical operations, we primarily generate revenues from surface use fees, easements and rights-of-way, resource sales, such as brackish water and caliche, and royalties associated with third-party development and infrastructure on or adjacent to our lands, rather than by operating drilling or midstream assets. As a result, any sustained reduction in operator activity on or around our lands could materially reduce our revenues, earnings and cash flows. Periods of lower commodity prices may cause operators to curtail drilling and completion programs, defer or renegotiate commercial arrangements or surrender leases, any of which could reduce demand for surface access, water and other resources sourced from our lands and diminish volumetric royalties tied to produced-water handling and disposal, thereby adversely affecting our ability to realize anticipated revenues from our existing asset base. While certain arrangements, such as our Hydrosource Recycling Agreement and DE Flow WSMA, which include minimum annual royalty revenuesrevenues, can partially mitigate volume risk, these features do not eliminate our exposure to reduced activity levels, delays or cancellations driven by commodity price weakness or volatility.

Our ability to grow also depends on continued demand for access to our lands and associated surface rights by E&P operators, midstream providers and other energy and infrastructure users, which demand is closely linked to commodity price expectations, industry capital spending and basin-level capital allocation. If oil and natural gas prices remain depressed or volatile for an extended period, or if operators reallocate capital away from the Delaware or Midland basinsBasins where our properties are concentrated, we could experience slower growth in new surface-use arrangements, reduced renewals or expansions of existing agreements and intensified competition for fewer development opportunities. In particularparticular, throughput and related royalties from our Midland Basin produced-waterintegrated handlingwater networkmanagement system (operated by DEF Operating and currently designed for peak handling capacity of approximately 400 MBbls/d) depend on producer activity levels and the pace of tie-ins,tie-ins. In addition, constraints such as pore-space availability, recycling and injection permitting, supply-chain delays or deferrals of drilling and completion schedules can limit volumetric growth and associated payments to us notwithstanding contractual protections. More broadly, because a substantial portion of our revenues are activity-linked, arising from surface use fees, rights-of-way and easements, water sales, produced-water transportation, recycling and disposal royalties and resource sales (including caliche), industry slowdowns can directly reduce the number, timing and scale of projects undertaken on our land, negatively affecting our results of operations and our ability to execute our growth strategy.

As a result of the IPO, we incurred incremental, non-recurring costs associated with our transition to a publicly traded and taxable entity. These transition-related expenses include IPO-related professional fees and other IPO costs, as well as the initial design, documentation, implementation and testing of enhanced internal controls over financial reporting under the Sarbanes-Oxley Act ("SOX").Act. We also incurred one-time investments in governance structures and policies, board and committee operations, director onboarding and training and upgrades to financial reporting, disclosure and compliance systems necessary to support public company requirements.

We were formed solely to serve as the issuer in the IPO and, other than activities related to the IPO,and have notno conductedprevious anyoperations, materialassets businessor operations to date.liabilities. As a result, the historical consolidated financial statements and other historical financial information prior to May 15, 2026 included in this Quarterly Report are based on the results of the Predecessor prior to the Corporate ReorganizationReorganization. in connection with the IPO. As a result,Accordingly, the historical consolidated financial data may not give you an accurate indication of what our actual results would have been if the Corporate Reorganization had been completed at the beginning of the periods presented or of what our future results of operations are likely to be. See “”—Recent Developments — Corporate ReorganizationReorganization.” Following the Corporate Reorganization, we are a holding company and the sole managing member of EagleRock Land Operating, LLC ("OpCo"), consolidating OpCo for financial reporting purposes while initially reflecting a noncontrolling interest for limited liability company interests of OpCo ("OpCo Units") not owned by us. Our structure is commonly referred to as an “Up-C,” in which public investors hold our Class A shares and thereby an indirect interest in OpCo, while our Existing Owners (as defined herein) and the TCW Entities (as defined herein) initially hold a majority of OpCo Units paired with our Class B shares representing limited liability company interests ("Class B shares"). Our and OpCo’s capital structures will generally mirror one another to maintain a one-for-one exchange ratio between OpCo Units and our Class A shares. Although organized as a limited liability company, we have elected to be taxed as a corporation for U.S. federal income tax purposes.

Concurrently with the closing of the IPO, we consummated the Corporate Reorganization, through which we acquired significant surface acreage and water infrastructure assets that expanded our operating footprint and revenue-generating asset base. See "“—Recent Developments — Corporate Reorganization"” for more information on these acquisitions. These transactions will bewere accounted for in accordance with applicable GAAP, which may resultresulted in the recognition of identifiable intangible assets and property, plant and equipment of the accounting acquirees at fair value and included differences in the timing and classification of acquisition-related costs depending on the final accounting conclusion.costs. As a result, our post-IPO results will reflect a larger asset base and a different mix of revenues and expenses than those presented in the Predecessor’s financial statements.expenses.