LEASES

3 Months Ended

Mar. 31, 2026

Leases

LEASES

NOTE 2: LEASES

At the inception of a lease, Koil Energy evaluates the agreement to determine whether the lease will be accounted for as an operating or finance lease. The term of the lease used for such an evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured, and if the contract contains a substantial penalty for failure to renew or extend the lease, it could lead the Company to conclude it has a significant economic incentive to extend the lease beyond the base rental period.

The Company leases land, buildings, and certain equipment under non-cancellable operating leases. We lease office, indoor manufacturing, warehouse, and operating space in both Houston, Texas and Macae, Brazil, and lease storage space in Mobile, Alabama to house our 3,400 metric ton and 3,500 metric ton carousel systems. We classify our leases related to computer equipment as finance leases. The Company elects to apply the short-term lease exception; therefore, the Company will not record an ROU asset or corresponding lease liability for leases with an initial term of twelve months or less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The Company elects to apply the practical expedient to not separate lease components from non-lease components and instead account for both as a single lease component for all asset classes.

Most leases include one or more options to renew, with renewal terms that can extend the lease term on a monthly, annual or longer basis. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option that is reasonably certain of being exercised.

The Company elects to not capitalize any lease in which the estimated value of the underlying asset at the commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria.

On November 19, 2025, Koil Energy Solutions do Brazil Ltda, began subleasing a portion of its administrative offices for R$30 per month (or approximately $5 at current exchange rates). This sub-lease is for three months and is renewable. As of March 31, 2026, this sublease is still active.

The following tables present information about our operating and finance leases:

	Classification	March 31, 2026		December 31, 2025
Assets
Operating	Right-of-use operating lease assets	$	5,603	$	5,770
Finance	Right-of-use finance lease assets		48		53
Total lease assets		$	5,651	$	5,823
Liabilities
Current
Operating	Current operating lease liabilities	$	934	$	899
Finance	Current finance lease liabilities		20		20
Non-current
Operating	Operating lease liability, long-term		5,445		5,658
Finance	Finance lease liability, long-term		27		29
Total lease liabilities		$	6,426	$	6,606

The components of our lease expense were as follows:

		Three Months Ended March 31,
	Classification	2026		2025
Finance lease costs
Amortization of ROU assets	Selling, general and administrative	$	6	$	3
Operating lease expense	Cost of sales		277		243
Operating lease expense	Selling, general and administrative		55		55
Short term lease expense	Cost of sales		109		195
Total lease expense		$	447	$	496

The lease term and discount rate for our operating and finance leases were as follows:

	March 31, 2026		December 31, 2025
Weighted-average remaining lease terms (years)
Operating leases		6.00		6.67
Finance leases		3.40		3.47
Weighted-average discount rates
Operating leases		7.45%		7.44%
Finance leases		4.54%		4.66%

Present value of lease liabilities:

	Operating Leases			Finance Leases
April 1, 2026 - March 31, 2027	$	1,394		$	22
April 1, 2027 - March 31, 2028		1,394			9
April 1, 2028 - March 31, 2029		1,343			9
April 1, 2029 - March 31, 2030		1,064			9
April 1, 2030 - March 31, 2031		1,085			1
Thereafter		1,761			–
Total lease payments		8,041			50
Less: interest		(1,662	)		(3	)
Present value of lease liabilities	$	6,379		$	47