0001072613-20-000282.txt : 20200814 0001072613-20-000282.hdr.sgml : 20200814 20200814145543 ACCESSION NUMBER: 0001072613-20-000282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 55 CONFORMED PERIOD OF REPORT: 20200630 FILED AS OF DATE: 20200814 DATE AS OF CHANGE: 20200814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPIRE PETROLEUM CORP CENTRAL INDEX KEY: 0000887396 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731238709 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16653 FILM NUMBER: 201104261 BUSINESS ADDRESS: STREET 1: 1203 EAST 33RD STREET STREET 2: SUITE 250 CITY: TULSA STATE: OK ZIP: 74105 BUSINESS PHONE: (539) 444-8002 MAIL ADDRESS: STREET 1: 1203 EAST 33RD STREET STREET 2: SUITE 250 CITY: TULSA STATE: OK ZIP: 74105 FORMER COMPANY: FORMER CONFORMED NAME: AMERICOMM RESOURCES CORP DATE OF NAME CHANGE: 19951115 FORMER COMPANY: FORMER CONFORMED NAME: AMERICOMM CORP DATE OF NAME CHANGE: 19930328 10-Q 1 form10q063020.htm FORM 10-Q FOR PERIOD ENDED JUNE 30, 2020
 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One) 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 For the quarterly period ended:  June 30, 2020

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 For the transition period from: ____________to ____________

 

 

_____________________

 

EMPIRE PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

_____________________

 

DELAWARE 001-16653 73-1238709

(State or Other Jurisdiction of

Incorporation or Organization)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

 

 

 

1203 East 33rd Street, Suite 250 Tulsa, OK 74105

(Address of principal executive offices)(Zip Code)

 

(539) 444-8002

(Registrant’s telephone number, including area code)

 

 

(Former name or former address and former fiscal year, if changed since last report)

_________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
None EMPR None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated  filer ☐
 
Non-accelerated filer ☒ Smaller reporting company ☒
 
Emerging growth company ☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒ 

 

 

 

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

 

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares of the registrant's common stock, $0.001 par value, outstanding as of June 30, 2020 was 21,392,277. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -2-

 

EMPIRE PETROLEUM CORPORATION

 

INDEX TO FORM 10-Q

 

 

 

PART I. FINANCIAL INFORMATION Page No.
     
Item 1. Financial Statements  
     
 

Consolidated Balance Sheets at June 30, 2020 (Unaudited) and December 31, 2019

4
     
  Consolidated Statements of Operations – For the three and six months ended June, 2020 and 2019 (Unaudited) 5
     
 

Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) – For the six months ended June 30, 2020 and 2019 (Unaudited)

6
     
  Consolidated Statements of Cash Flows – For the six months ended June 30, 2020 and 2019 (Unaudited) 7
     
  Notes to Consolidated Financial Statements 8 - 16
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17-21
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
     
Item 4. Controls and Procedures   21
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 22
     
Item 1A. Risk Factors 22
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
     
Item 3. Defaults Upon Senior Securities 22
     
Item 4. Mine Safety Disclosures 22
     
Item 5. Other Information 22
     
Item 6. Exhibits 22
     
  Signatures 23
     
     

 

 

 

 

 

 

 

 -3-

 

PART I. FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

EMPIRE PETROLEUM CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

 

 

   June 30, 2020   December 31, 2019 
    (UNAUDITED)      
ASSETS          
           
Current Assets:          
Cash  $285,813   $ 
Accounts Receivable   928,152    982,814 
Unrealized Gain on Derivative Instruments   850,674     
Inventory   567,478    476,305 
Prepaids   83,247    129,541 
Total Current Assets   2,715,364    1,588,660 
           
Property and equipment:          
Oil and Natural Gas Properties, Successful Efforts   24,702,866    12,660,457 
Less: Accumulated Depreciation, Depletion and Impairment   (4,918,808)   (3,365,340)
    19,784,058    9,295,117 
Other Property and Equipment, net of $3,399 and $1,830 Accumulated Depreciation, respectively   11,056    12,626 
Total Property and Equipment, net   19,795,114    9,307,743 
           
Utility and other deposits   487,811    118,177 
Acquisition deposit, net of allowance of $725,000 and $-0-, respectively (see Note 4)   125,000     
           
Total Assets  $23,123,289   $11,014,580 
           
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
Current Liabilities:          
Accounts Payable  $1,040,036   $1,025,585 
Accrued Expenses   2,356,024    1,103,916 
Unrealized Loss on Derivative Instruments       11,861 
Current Portion of Long-term Notes Payable   8,731,494    96,704 
Total Current Liabilities   12,127,554    2,238,066 
           
Long Term Portion of Unrealized Loss on Derivative Instruments   11,529    211,771 
Long-Term Notes Payable   160,700    7,715,118 
Contingent Payments (see Note 5)   985,820     
Asset Retirement Obligations   15,652,761    5,788,280 
Total Liabilities   28,938,364    15,953,235 
           
           
Stockholders' Deficit:          
Common Stock - $.001 Par Value 150,000,000 Shares Authorized,          
21,392,277 and 20,367,277 Shares Issued and Outstanding, Respectively   21,392    20,367 
Additional Paid-in Capital   19,331,651    18,823,926 
Accumulated Deficit   (25,168,118)   (23,782,948)
Total Stockholders' Deficit   (5,815,075)   (4,938,655)
           
Total Liabilities and Stockholders' Deficit  $23,123,289   $11,014,580 

 

See accompanying notes to unaudited consolidated financial statements 

 -4-

 

EMPIRE PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
                 
   2020   2019   2020   2019 
                     
Revenue:                    
Oil and Gas Sales  $994,529   $1,996,758   $2,308,929   $2,320,968 
Net realized and unrealized Gain (Loss) on Derivatives   (402,374)   500,728    2,106,671    432,369 
Total Revenue   592,155    2,497,486    4,415,600    2,753,337 
                     
Costs and Expenses:                    
Operating   723,535    1,241,384    2,189,490    1,393,871 
Taxes - Production   60,569    129,824    144,528    149,473 
Depletion, Depreciation & Amortization   486,568    862,120    754,585    880,206 
Impairment of Oil and Natural Gas Properties           800,452     
Accretion of Asset Retirement Obligation   257,043    63,228    355,997    69,827 
General and Administrative   1,914,406    2,044,022    2,443,390    2,656,611 
                     
Total Cost and Expenses   3,442,121    4,340,578    6,688,442    5,149,988 
                     
Operating Loss   (2,849,966)   (1,843,092)   (2,272,842)   (2,396,651)
                     
Other Income and (Expense):                    
Gain on Sale of Assets           1,143,760     
Interest Expense   (123,219)   (162,968)   (256,088)   (196,911)
                     
Net Loss  $(2,973,185)  $(2,006,060)  $(1,385,170)  $(2,593,562)
                     
Net Loss per Common Share, Basic & Diluted  $(0.14)  $(0.10)  $(0.07)  $(0.14)
Weighted Average Number of Common Shares Outstanding,                    
Basic & Diluted   21,392,277    19,358,110    21,222,387    18,587,304 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

 -5-

 

EMPIRE PETROLEUM CORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the six months ended June 30, 2020 and 2019

(UNAUDITED)

 

           Additional         
   Common Stock   Paid-In   Accumulated     
   Shares   Par Value   Capital   Deficit   Total 
                     
Balances, December 31, 2019   20,367,277   $20,367   $18,823,926   $(23,782,948)  $(4,938,655)
                          
Net Income               1,588,015    1,588,015 
                          
Shares, Options, Warrants                         
and Conversion Features Issued   1,025,000    1,025    101,475        102,500 
                          
Balances, March 31, 2020   21,392,277   $21,392   $18,925,401   $(22,194,933)  $(3,248,140)
                          
Net Loss               (2,973,185)   (2,973,185)
                          
Shares, Options, Warrants                         
and Conversion Features Issued           406,250        406,250 
                          
Balances, June 30, 2020   21,392,277   $21,392   $19,331,651   $(25,168,118)  $(5,815,075)
                          
                          

 

 

           Additional         
   Common Stock   Paid-In   Accumulated     
   Shares   Par Value   Capital   Deficit   Total 
                     
Balances, December 31, 2018   17,345,609   $17,345   $16,960,818   $(17,128,346)  $(150,183)
                          
Net Loss               (587,502)   (587,502)
                          
Shares, Options, Warrants                         
and Conversion Features Issued   1,446,668    1,447    215,553        217,000 
                          
Balances, March 31, 2019   18,792,277   $18,792   $17,176,371   $(17,715,848)  $(520,685)
                          
Net Loss               (2,006,060)   (2,006,060)
                          
Shares, Options, Warrants                         
and Conversion Features Issued   1,075,000    1,075    1,598,055        1,599,130 
                          
Balances, June 30, 2019   19,867,277   $19,867   $18,774,426   $(19,721,908)  $(927,615)

 

See accompanying notes to unaudited consolidated financial statements

 

 -6-

 

EMPIRE PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

   Six Months Ended June 30, 
         
  

2020 

   2019 
Cash Flows From Operating Activities:          
Net Loss  $(1,385,170)  $(2,593,562)
           
Adjustments to Reconcile Net Loss to Net Cash          
Provided by (used in) Operating Activities:          
Gain on Sales of Assets   (1,143,760)    
Value of warrants and options granted   406,250    1,491,630 
Amortization of Warrant Value and Conversion Feature on          
Convertible Notes       2,998 
Amortization of Loan Issue Costs   29,172    14,486 
Depreciation, Depletion and Amortization   754,585    880,206 
Impairment of Oil and Natural Gas Properties   800,452     
Accretion of Asset Retirement Obligation   355,997    69,827 
Allowance for loss relating to purchase deposit   725,000      
Change in Operating Assets and Liabilities:          
Accounts Receivable   54,662    (662,165)
Unrealized Gain on Derivative Instruments   (1,062,775)   (334,155)
Inventory   56,124    (33,703)
Prepaids   46,294    (56,819)
Utility and other deposits   8,366     
Accounts Payable   (6,005)   121,794 
Accrued Expenses   66,521    1,154,074 
Net Cash Provided by (used in) Operating Activities   (294,287)   54,611 
           
Cash Flows from Investing Activities:          
Acquisition of Oil and Natural Gas Properties   (506,000)   (5,706,531)
Purchase of other fixed assets       (14,455)
Proceeds From Sale of Oil and Natural Gas Properties   1,160,400     
Deposit for Purchase of Oil and Natural Gas Properties   (850,000)    
Net Cash Used in Investing Activities   (195,600)   (5,720,986)
           
Cash Flows from Financing Activities:          
Proceeds from Debt Issued   925,700    6,479,744 
Principal Payments of Debt   (150,000)   (1,065,000)
Proceeds from Stock and Warrant Issuance       167,000 
Net Cash Provided by Financing Activities   775,700    5,581,744 
           
Net Change in Cash   285,813    (84,631)
           
Cash - Beginning of Period       84,631 
           
Cash - End of Period  $285,813   $ 
           
Supplemental Cash Flow Information:          
Cash Paid for Interest  $306,333   $160,088 
           
Non-cash Investing and Financing Activities:          
Non-cash Additions to Asset Retirement Obligations  $9,508,484   $3,400,770 
Common Stock Issued in Exchange for Outstanding Notes Payable  $   $157,500 
Purchases of oil and natural gas properties in accounts payable  $   $291,420 
Purchases of oil and natural gas properties and deposits in accounts and notes payable, royalty suspense, and contingent payable to seller  $2,569,863   $ 

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

 -7-

 

EMPIRE PETROLEUM CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2020

(UNAUDITED)

 

 

1.       BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited consolidated financial statements of Empire Petroleum Corporation ("Empire" or the "Company") have been prepared in accordance with United States generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, the results of operations, and the cash flows for the interim period are included. All adjustments are of a normal, recurring nature. Operating results for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

The information contained in this Form 10-Q should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2019 which are contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 30, 2020.

 

The Company has incurred significant losses in recent years. The continuation of the Company as a going concern is dependent upon the ability of the Company to attain future profitable operations and/or additional debt or equity financing until profitable operations are achieved. These financial statements have been prepared on the basis of United States generally accepted accounting principles applicable to a company with continuing operations, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. Management believes the going concern assumption to be appropriate for these financial statements. If the going concern assumption were not appropriate for these financial statements, then adjustments might be necessary to adjust the carrying value of assets and liabilities and reported expenses.

 

The Company’s impairment assessment of proved and unproved mineral properties is based on several factors including oil and gas spot market prices and estimated futures prices that existed at June 30, 2020. In 2020, crude oil prices in both the spot market and futures market experienced significant volatility. For the six months ended June 30, 2020 the Company recorded an impairment expense of $800,452 as a result of the decline in oil prices (See Note 3). Further, the effect of lower crude oil prices on the Company’s future financial position or results of operations is not currently determinable due to broader economic and industry uncertainties, including the impact to the operators and other working interest owners of the properties in which the Company owns mineral interests.

 

In the event crude oil or natural gas prices remain low, there is the risk that, among other things:

 

·the Company’s revenues, cash flows and profitability may decline substantially, which could also indirectly impact expected production by reducing the amount of funds available to acquire future mineral interests;

 

·reserves relating to the Company’s proved properties may become uneconomic to produce resulting in impairment of proved properties; and

 

·operators and other working interest owners are unable to execute their drilling and exploration programs resulting in lower production or inability to prove reserves on unproved properties

 

The occurrence of certain of these events may have a material adverse effect on the Company's business, results of operations and financial condition.

 

In early March 2020, there was a global outbreak of COVID-19 that continued into the second quarter and has resulted in changes in global supply and demand of certain mineral and energy products. These changes, including the magnitude and length of the economic downturn and any potential resulting direct and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company’s acquisition and project development activities, and cash flows and liquidity.

 

 

 

 -8-

 

 

Reclassification of prior year presentation. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Balance Sheet for the year ended December 31, 2019 to reclassify certain utility and other deposits in the amount of $118,177 which had previously been included in prepaids.

 

The continuation of the Company is dependent upon the ability of the Company to raise capital and attain future profitable operations. The ultimate recoverability of the Company's investment in oil and natural gas interests is dependent upon the existence and discovery of economically recoverable oil and natural gas reserves, the ability of the Company to obtain necessary financing to further develop the interests, and the ability of the Company to attain future profitable production.

 

As of June 30, 2020, the Company had $285,813 of cash and working capital deficit of $9,412,190, which includes the net balance of the Senior Revolver Loan Agreement of $8,397,253 which matures March 27, 2021. The Company has proved reserves which have been acquired within the last two years. The Company plans to continue to look for oil and natural gas investments and will use a combination of debt and equity financing to fund the acquisitions. The Company expects to also incur costs related to evaluating and acquiring oil and natural gas acquisitions for the foreseeable future. It is expected that management will attempt to raise additional capital for future investment and working capital opportunities.

 

Compensation of Officers and Employees

 

As of June 30, 2020, the Company had three employees. No independent Board members received compensation from the Company in the first six months of 2020 or 2019. For the six months ended June 30, 2020, the Company paid Mr. Morrisett and Mr. Pritchard $116,000 each for services rendered. For the six months ended June 30, 2019, the Company paid Mr. Morrisett $127,450 and Mr. Pritchard $131,450 for services rendered excluding the value of options. In addition, as of June 30, 2020 Mr. Pritchard has outstanding advances of $26,017.

 

 

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation. The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"), and Empire Texas, LLC (“Empire Texas”). All material intercompany balances and transactions have been eliminated.

 

Use of estimates in the preparation of financial statements. Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs. Other significant estimates include, but are not limited to, asset retirement obligations, fair value of assets purchased in acquisitions, and taxes.

 

Interim financial statements. The accompanying consolidated financial statements of the Company have not been audited by the Company's independent registered public accounting firm. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

 

Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

 

Inventory.  Inventory consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe which has not yet been put into production.

 

Revenue recognition. The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated on the Company's consolidated statements of operations. The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company's performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At June 30, 2020, the Company had receivables related to contracts with customers of approximately $590,000.

 

 

 

 -9-

 

 

Fair value measurements. The Financial Accounting Standards Board ("FASB") fair value measurement standards define fair value, establish a consistent framework for measuring fair value and establish a fair value hierarchy based on the observability of inputs used to measure fair value.

 

Convertible debt - The carrying value of the convertible debt approximate fair value as of December 31, 2019. As of June 30, 2020 all of the convertible debt had been converted to shares of the Company’s common stock. Management's estimates are based on the assessment of qualitative factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB ASC 820.

 

Oil and natural gas properties - The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved and unproved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. For significant purchases, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The inputs used to value oil and natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other- The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying value due to their short-term nature.

 

 

3.       PROPERTY AND EQUIPMENT

 

In March 2019, the Company, through its subsidiary, Empire North Dakota, LLC, purchased oil and natural gas properties in Montana and North Dakota (See Note 7).

 

On January 27, 2020, the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Bill of Sale and Assignment to purchase lease interests in approximately 4,936 acres in Montana for $500,000.

 

On February 10, 2020, the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold overriding royalty interests for leases it owned in Montana for $325,000 to a consultant of the Company. As of June 30, 2020 $200,000 of the sales price had been received with the balance pending completion of title work.

 

On February 17, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold all of its interest in leases of approximately 337 acres in Montana for $1,010,400.

 

On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, purchased oil and natural gas properties in Texas (see Note 5).

 

During the six months ended June 30, 2020, NYMEX strip prices experienced significant volatility, resulting in a significant decrease in value of the Company’s economically recoverable proved oil and natural gas reserves. As such, the carrying amount of the Company’s proved oil and natural gas properties exceeded the expected undiscounted future net cash flows for certain leases, resulting in impairment charges against earnings of $800,452. These impairment charges are included in impairments of long-lived assets on the consolidated statement of operations for the six months ended June 30, 2020. The Company did not recognize an impairment of proved oil and natural gas properties during the six months ended June 30, 2019.

 

 

 -10-

 

 

The aggregate capitalized costs of oil and natural gas properties as of June 30, 2020, are as follows: 

Proved producing wells  $5,284,041 
Proved undeveloped   2,232,458 
Lease, well and gathering  equipment   1,705,092 
Asset retirement obligation   14,988,534 
Unproved leasehold costs   492,741 
Gross capitalized costs   24,702,866 
Less: accumulated depreciation, depletion and impairment   (4,918,808)
   $19,784,058 

 

Other property and equipment consists of office furniture and equipment.

 

Oher property and equipment, at cost  $14,456 
Less: accumulated depreciation   (3,400)
Oher property and equipment, net  $11,056 

 

 

4.       ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES

 

On March 3, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Ovintiv USA, Inc. and several related companies to purchase certain oil and natural gas properties in Montana and North Dakota comprising 26,600 net acres with 94 active wells. The purchase price is $8,500,000, subject to adjustments with an effective date of January 1, 2020 and a closing date of April 30, 2020.

 

The Company has made an $850,000 deposit relating to the purchase which is recorded as a deposit on its balance sheet. Due to the COVID pandemic, and governmental state of emergency orders related thereto, the Company was unable to meet with and obtain financing to complete the purchase from its lenders. As of June 30, 2020 the Agreement has been terminated. The Company is currently in communication with the Seller for return of the deposit. The Company may not be successful in obtaining return of the entire deposit and has recorded an allowance of $725,000 based on its assessment of the negotiations.

 

 

5.       ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES

 

On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Pardus Oil & Gas, LLC and Pardus Oil & Gas Operating GP, LLC (collectively “the Seller”) to purchase certain oil and natural gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines and related facilities and equipment, and all general and limited partner interest in Pardus Oil & Gas Operating, LP. The purchase price included the assumption of certain obligations and a contingent payment not to exceed $2,000,000 reduced by certain revenue suspense amounts. The contingent payment is based on monthly oil production in excess of a specified level from the purchased properties and an average monthly realized oil price of $40 or more per barrel of oil through December 31, 2022. The transaction closed on April 7, 2020.

 

The following table sets forth the Company's purchase price allocation:

 

 

     
Fair Value of Assets Acquired    
Oil and natural gas properties  $1,935,366 
Inventory of oil in tanks   147,297 
Deposits   378,000 
Equipment and gathering lines   109,200 
Asset retirement obligation asset   9,508,484 
      
Total Assets Acquired  $12,078,347 
      
Fair Value of Liabilities Assumed     
Accounts payable, net  $20,456 
Note payable – current   378,000 
Royalty suspense   1,185,587 
Asset retirement obligations   9,508,484 
      
Total liabilities assumed  $11,092,527 
      
Total consideration  $985,820 

 

 

 -11-

 

 

 

The fair values of assets acquired and liabilities assumed were based on the following key inputs:

 

Oil and natural gas properties

 

The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations totaled $9,508,484 and is included with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The total consideration consists of a contingent payment to the seller which is due based on monthly production of oil and natural gas through December 31, 2022 and a monthly average price of $40 or higher per barrel.

 

The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other

 

The fair values determined for accounts payable - trade were equivalent to the carrying value due to their short-term nature.

 

Accounts payable - trade includes $20,456 of liabilities primarily related to well activity prior to close.

 

 

6.       ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES

 

On June 10, 2019, the Company received a process verbal and related sheriff's deed dated as of May 29, 2019 (the "Sheriff's Deed") pertaining to two wells in St. Landry Parish purchased from Business First Bancshares, Inc. d/b/a Business First Bank ("Business First").

 

Pursuant to the Sheriff's Deed, the Company acquired certain oil and natural gas properties located in St. Landry Parish, Louisiana, including operated working interest in two producing wells. The Company purchased Business First's position as the superior lienholder and seizing creditor of such oil and natural gas properties, which were owned by Warhorse Oil & Gas, LLC, for $450,000 plus $16,993 sheriff fees. The payment was paid from loan proceeds under the loan agreement with CrossFirst Bank (see Note 9).

 

The Company treated the acquisition as an asset purchase. An amount equal to $73,968 was allocated to lease and well equipment and $378,110 was allocated to producing properties. An asset retirement obligation of $19,732 was recorded in conjunction with the purchase.

 

 

 

7.       ACQUISITION OF ENERGYQUEST II ASSETS

 

On March 28, 2019, the Company purchased oil producing properties from EnergyQuest II, LLC ("EnergyQuest") for a purchase price of $5,600,000. The effective date of the transaction was January 1, 2019. After certain adjustments related to the effective date, the total proceeds paid to EnergyQuest were $5,646,126.  Such proceeds were paid from borrowing on notes payable and sales of unregistered securities of the Company.

 

 

 -12-

 

 

The following table sets forth the Company's purchase price allocation:

 

 

     
Fair Value of Assets Acquired    
Accounts receivable  $1,308,748 
Inventory of oil in tanks   438,321 
Oil properties   10,878,429 
      
Total Assets Acquired  $12,625,498 
      
Fair Value of Liabilities Assumed     
Accounts payable – trade  $1,861,433 
Asset retirement obligations   5,117,939 
      
Total liabilities assumed  $6,979,372 
      
Total consideration paid  $5,646,126 

 

 

The fair values of assets acquired and liabilities assumed were based on the following key inputs:

 

Oil and natural gas properties

 

The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations totaled $5,117,939 and is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other

 

The fair values determined for accounts receivable and accounts payable - trade were equivalent to the carrying value due to their short-term nature.

 

Accounts payable - trade includes $1,861,433 of liabilities primarily related to well activity prior to close.

 

 

8.        DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company uses derivative financial instruments to manage its exposure to commodity price fluctuations. Commodity derivative instruments are used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells. The Company’s derivative financial instruments consist of oil and natural gas swaps.

 

The Company does not enter into derivative financial instruments for speculative or trading purposes.

 

The Company does not designate its derivative instruments to qualify for hedge accounting. Accordingly, the Company reflects changes in the fair value of its derivative instruments in its consolidated statements of operations as they occur. Unrealized gains and losses related to the swap contracts are recognized and recorded as an asset or liability on the Company’s balance sheet.

 

 

 

 -13-

 

 

The following table summarizes the net realized and unrealized amounts reported in earnings related to the commodity derivative instruments for the three and six months ended June 30, 2020 and 2019:

 

   Three months ended June 30,   Six months ended June 30, 
                 
   2020   2019   2020   2019 
Gain (loss) on derivatives:                    
Oil derivatives  $(402,374)  $492,548   $2,106,671   $424,952 
Natural gas derivatives       8,180        7,417 
Total  $(402,374)  $500,728   $2,106,671   $432,369 
                     

 

 

The following represents the Company’s net cash receipts from derivatives for the three and six months ended June 30, 2020 and 2019:

 

   Three months ended June 30,   Nine months ended June 30, 
                 
   2020   2019   2020   2019 
Net cash received from payments on derivatives                    
Oil derivatives  $510,609   $74,154   $1,043,894   $93,503 
Natural gas derivatives       4,305        4,711 
Total  $510,609   $78,459   $1,043,894   $98,214 

 

 

 

The following table sets forth the Company’s outstanding derivative contracts at June 30, 2020. The Company has no outstanding natural gas derivatives. All of the Company’s derivatives are expected to settle by October 2021:

 

   1st Quarter    2nd Quarter   3rd Quarter   4th Quarter  
2020                    
Oil Swaps:                    
Volume (MBbl)           16.02    15.78 
Price per Bbl          $58.39   $55.18 
                     
                     
2021                    
Oil Swaps:                    
Volume (MBbl)   15.26    15.18    5.20     
Price per Bbl  $49.40   $50.87   $38.25     

 

 

 

 

 

 -14-

 

 

9.        NOTES PAYABLE

 

In February 2019, the Company entered into five unsecured promissory note agreements with accredited investors totaling $90,000. The notes were due May 1, 2019, and accrued interest at 8%. One of the notes, in the amount of $15,000 was issued to Michael R. Morrisett, the Company's President. These notes and the related interest were paid in May 2019.

 

On September 20, 2018 the Company entered into a Senior Revolver Loan Agreement (“the Agreement”) with CrossFirst Bank (“CrossFirst”). The Agreement was amended March 27, 2019 (the “Amended Agreement”). The Amended Agreement commitment amount is $9,000,000 which is reduced by $150,000 per calendar quarter ($8,400,000 at June 30, 2020) and the maximum amount that can be advanced under the Agreement is $20,000,000 and includes interest at Wall Street Journal Prime plus 150 basis points (4.75% as of June 30, 2020). The Agreement matures on March 27, 2021. Collateral for the loan is a lien on all of the assets of the Company’s wholly owned subsidiaries, Empire Louisiana and Empire North Dakota, and a first priority mortgage lien, pledge of and security interest in not less than 80% of Empire Louisiana’s and Empire North Dakota’s producing oil, gas and other leasehold and mineral interests. The Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve month basis. The Company is not in compliance with the funded debt to EBITDAX covenant of the Agreement at June 30, 2020. As of June 30, 2020, the Company has an outstanding loan balance of $8,397,253 under the Agreement.

 

In January 2020 three of the Senior Unsecured Promissory Note investors exercised the conversion feature and converted their $102,500 notes for 1,025,000 shares of the Company's common stock. All of the Senior Unsecured Promissory Notes have been converted to common stock of the Company as of March 31, 2020.

 

On April 1, 2020, in conjunction with the purchase of assets from Pardus Oil & Gas, LLC (see Note 5), the Company entered into a unsecured promissory note agreement with the seller in the amount of $378,000. The note is payable in one installment on April 1, 2021 and bears interest at the one-year LIBOR rate (1% as of June 30, 2020).

 

On May 5, 2020, the Company, through its wholly owned subsidiary, Pardus Oil & Gas Operating, LP, received an SBA Payroll Protection Plan (“PPP”) loan for $160,700. The loan matures on May 5, 2022 and has an interest rate of 1%. There are no payments due until November 5, 2020 at which time the payment amount will be determined based on the portion of the loan which has not been forgiven under criteria established by the SBA, using an eighteen-month amortization. The Company expects that the majority of the loan amount will be forgiven based on currently published guidelines of the United States Small Business Administration.

 

 

10.     EQUITY

 

Diluted Earnings per Share ("EPS") gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on losses. As a result, if there is a loss from continuing operations, Diluted EPS is computed in the same manner as Basic EPS. At March 31, 2020 and 2019, the Company had 5,004,167 and 4,167 respectively, options outstanding that were not included in the calculation of earnings per share for the periods then ended. Such financial instruments may become dilutive and would then need to be included in future calculations of Diluted EPS. At June 30, 2020 and 2019, the outstanding options were considered anti-dilutive since the strike prices were above the market price and since the Company has incurred losses year to date.

 

In March 2019, 1,446,668 outstanding $0.15 warrants were converted to shares of common stock of the Company. Proceeds received from the conversion was $217,000 including $50,000 of notes payable conversion by Mr. Kamin, a board member.

 

During May 2019, the Company issued warrants to purchase 300,000 shares of its common stock for $0.17 per share which expire on December 31, 2021 to a former employee for business assistance provided. The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 217%, risk free interest rate of 1.92% and an expected useful life of 31 months. The fair value of the warrants of $58,380 was recorded as compensation expense and allocated to Paid in Capital.

 

 

 -15-

 

 

On April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the "Stock Option Plan"). The total number of shares of common stock that may be issued pursuant to stock options under the Stock Option Plan is 10,000,000. Further, on April 3, 2019 the Company granted Mr. Pritchard and Mr. Morrissett each, options to purchase 2,500,000 shares of common stock of the Company at an exercise price of $0.33 per share. The options vest in three installments with 1,250,000 vesting immediately and 625,000 vesting each in April 2020 and April 2021. All of the options expire in April, 2029. The value allocated to the vested options was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5.375 years. The fair value of the vested options of $812,500 was recorded as compensation expense and allocated to Paid in Capital in 2019. In 2020, the fair value of the options which vested in April 2020 of $406,250 was recorded as compensation expense and allocated to Paid in Capital. The fair of the remaining unvested options is $406,250 as of June 30, 2020.

 

On April 3, 2019 the Board of Directors of the Company amended certain warrant certificates which had been issued to Mr. Kamin covering 3,000,000 warrants to purchase common stock of the Company. The original warrants expired on December 31, 2021 and had exercise prices of $0.15 and $0.25 for 500,000 and 2,500,000 shares, respectively. The warrants were extended to expire on April 2, 2029. The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5 years. The fair value of the warrants of $620,750 was recorded as compensation expense and allocated to Paid in Capital.

 

 

11.     SUBSEQUENT EVENTS

 

On August 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a joint development agreement (the “Agreement”) with Petroleum & Independent Exploration, LLC and related entities (“PIE”) dated August 1, 2020. Under the terms of the Agreement, PIE will perform recompletion and workover on specified wells owned by Empire. To fund the work, PIE entered into a term loan agreement with Empire dated August 1, 2020, whereby PIE will loan up to $2,000,000, at an interest rate of 6% per annum, maturing August 7, 2024 unless terminated earlier by PIE. On August 7, 2020, $150,000 was advanced to Empire from the loan. As part of the Agreement, Empire will assign to PIE a combined 85% working and revenue interest in the affected wells. Of the assigned interest, 70% will be used to repay the obligations under the term loan agreement. Once the term loan is repaid, PIE will assign a 35% working and revenue interest to Empire and retain a 50% working and revenue interest. In addition, PIE and Empire entered into a Securities Purchase Agreement (“Securities Agreement”) whereby PIE has agreed to purchase for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d) warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up to 11,066,667 shares of Empire common stock at an exercise price of $0.141 per share. PIE is obligated to exercise the $0.20 warrants within 45 days of when 3 month trailing average production from the Empire Texas properties have increased by 20% over the trailing 3 month trailing average production as of July 2020. PIE can only exercise the $0.25 warrants once all existing non-PIE outstanding warrants to purchase Empire common stock have been exercised or lapsed. For the $0.141 warrants, PIE may initially acquire 7,533,333 shares of Empire common stock, however the amount may be increased if any existing non-PIE warrants are exercised prior to December 31, 2020.

 

 

 

 

 

 

 

 

 

 -16-

 

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

GENERAL TO ALL PERIODS

 

RESULTS OF OPERATIONS

 

The Company's primary business is the exploration and development of oil and natural gas interests. The Company has incurred significant losses from operations, and there is no assurance that it will achieve profitability or obtain the funds necessary to finance its operations. For all periods presented, the Company's effective tax rate is 0%. The Company has generated net operating losses since inception, which would normally reflect a tax benefit in the statement of operations and a deferred asset on the balance sheet. However, because of the current uncertainty as to the Company's ability to achieve profitability, a valuation reserve has been established that offsets the amount of any tax benefit available for each period presented in the statements of operations.

 

The following table sets forth a summary of our production and operating data for the three and six month periods ended June 30, 2020. Because of normal production declines, increased or decreased drilling activities, fluctuations in commodity prices and the effects of acquisitions or divestitures, the historical information presented below should not be interpreted as being indicative of future results.

 

   Three months ended June 30,  

Six months ended June 30,

 
                 
   2020   2019   2020   2019 
Production and operating data:                
Net Production volumes:                
   Oil (Bbl) (a)   38,176    37,583    74,060    42,621 
   Natural gas (Mcf) (b)   45,423    11,822    57,863    22,560 
   Total (Boe) (c)   45,747    39,553    83,704    46,381 
                     
Average price per unit:                    
   Oil (Bbl) (a)   36.63    53.94    43.45    54.65 
   Natural gas (Mcf) (b)   1.95    3.08    1.84    2.96 
   Total (Boe) (c)   32.51    52.17    39.72    51.66 
                     

 

(a)Bbl - One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to oil, condensate or natural gas liquids.
(b)Mcf – One thousand cubic feet of natural gas.
(c)Boe - One barrel of oil equivalent, a standard convention used to express oil and natural gas volumes on a comparable oil equivalent basis. Natural gas equivalents are determined under the relative energy content method by using the ratio of 6.0 Mcf of natural gas to 1.0 Bbl of oil or condensate.

                         

   Three months ended June 30,   Six months ended June 30, 
                 
   2020   2019   2020   2019 
Operating costs and expenses per Boe:                    
Oil and natural gas production  $15.82   $31.39   $26.16   $30.05 
Production taxes  $1.32   $3.28   $1.73   $3.22 
Depreciation, depletion, amortization and accretion  $16.26   $23.39   $13.27   $20.48 
Impairment of oil and natural gas properties  $   $   $9.56   $ 
General and administrative  $41.85   $51.68   $29.19   $57.28 

 

 

 

 

 

 

 -17-

 

 

THREE-MONTH PERIOD ENDED JUNE 30, 2020 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30, 2019.

 

For the three months ended June 30, 2020 and 2019, revenues from oil and natural gas sales were $ 994,529 and $1,996,758 respectively. In 2020, due to COVID and other economic factors, prices of oil and natural gas declined, resulting in the Company reducing volumes produced.

 

Operating expenses, production taxes, depreciation and depletion and amortization and accretion decreased to $1,527,715 cumulatively for the three months ended June 30, 2020 from $2,296,556 for the same period in 2019. The decrease was due to a decrease in costs associated with oil and natural gas production, which was constrained during the period due to management’s reduction of production in response to lower prices.

 

Net realized and unrealized gain (loss) on derivatives decreased to $(402,374) for the three months ended June 30, 2020, from $500,728 in the same period 2019 due primarily to increases in oil prices since March 31,2020 and increases in oil prices during the same period in 2019, respectively, for those contracts in existence at that date.

 

General and administrative expenses decreased by $129,616 to $1,914,406 for the three months ended June 30, 2020, from $2,044,022 for the same period in 2019. The decrease was primarily due to options and warrants granted in 2019 as well as professional fees and travel related to the acquisition of oil and natural gas properties in 2019. In 2020, expenses included the $725,000 allowance for the acquisition deposit on the Ovintiv properties.

 

Interest expense was $123,219 and $162,968 for the three months ended June 30, 2020 and 2019, respectively. The decrease in interest expense of $39,749 resulted primarily from lower interest rates in 2020.

 

For the reasons discussed above, the previous period net loss increased by $967,125 from $(2,006,060) for the three months ended June 30, 2019 to net loss of $(2,973,185) for the three months ended June 30, 2020.

 

SIX-MONTH PERIOD ENDED JUNE 30, 2020 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30, 2019

 

For the six months ended June 30, 2020 and 2019, revenues from oil and natural gas sales were $ 2,308,929 and $2,320,968 respectively.  The Company purchased significant oil and natural gas properties in the second quarter of 2019 which were not included in 2019 revenues. In the second quarter of 2020, due to COVID and other economic factors, prices of oil and natural gas declined, resulting in the Company reducing volumes produced.

 

Operating expenses, production taxes, depreciation and depletion and amortization and accretion increased to $3,444,600 cumulatively for the six months ended June 30, 2020 from $2,493,377 for the same period in 2019. The increase was due primarily to only a partial period of production in 2019 because of the EnergyQuest acquisition March 2019.

 

Impairment of oil and natural gas properties expense increased to $800,452 for the six months ended June 30, 2020 from $0 for the same period in 2019. The increase was due to the change in market prices for oil and natural gas in 2020.

 

Gain on derivatives, net increased to $2,106,671 for the six months ended June 30, 2020, from $432,369 in the same period 2019 due to decrease in oil prices since the agreements were entered into or since December 31, 2020 and 2019 respectively, for those contracts in existence at that date, to the date of maturity or the balance sheet date.

 

General and administrative expenses decreased by $213,221 to $2,443,390 for the six months ended June 30, 2020, from $2,656,611 for the same period in 2019. The decrease was primarily due to options and warrants issued in 2019 and professional fees and travel related to the acquisition of oil and natural gas properties in 2019. In 2020, expenses included the $725,000 allowance for the acquisition deposit on the Ovintiv properties.

 

 

 -18-

 

Interest expense was $256,088 and $196,911 for the six months ended June 30, 2020 and 2019, respectively. The increase in interest expense of $59,177 resulted primarily from the debt issued to acquire oil and natural gas properties in the second quarter of 2019.

 

For the reasons discussed above, the previous period net loss decreased by $1,208,392 from $(2,593,562) for the six months ended June 30, 2019 to net loss of $(1,385,170) for the six months ended June 30, 2020

 

LIQUIDITY AND CAPITAL RESOURCES

 

GENERAL

 

As of June 30, 2020, the Company had $285,813 of cash. The Company expects to incur costs related to future oil and natural gas acquisitions for the foreseeable future. It is expected that management will attempt to raise additional capital for future investment and working capital opportunities.

 

OUTLOOK

 

See Notes 3 through 7 to the financial statements for information regarding the purchase agreements the Company entered into in 2019 and 2020 to purchase existing oil and natural gas properties and mineral interests. The Company is also actively pursuing the acquisition of other operated and non-operated oil and natural gas properties. It is anticipated that such acquisitions will be financed through equity or debt transactions.

 

Lower oil and natural gas prices present challenges to our industry and our Company. During the first and second quarters of 2020, the economic impact of the COVID-19 pandemic have caused oil price volatility in 2020. In the first two quarters of 2020, gains on settled derivatives offset a large portion of the impact of the recent decline in prices and slower production, and we currently have derivative positions in place for a substantial amount of our expected remaining 2020 production. There can be no assurance that we will be able to add derivative positions to cover the remainder of our expected production at favorable prices.

 

 

 

 

 

 

 

 

 -19-

 

 

The Impact of COVID-19 on Our Business

 

During the first two quarters of 2020, we did not experience any material impact to our ability to operate or market our production due to the direct or indirect impacts of the COVID-19 pandemic. The Cybersecurity and Infrastructure Security Agency in the U.S. Department of Homeland Security classifies individuals engaged in and supporting exploration for and production of natural gas, oil and NGLs as “essential critical infrastructure workforce,” and to date, state and local governments where our wells are located have followed this guidance and exempted these activities from business closures. Should this situation change, our access to supplies or workers to drill, complete and operate wells could be materially and adversely affected.

 

However, as decreased transportation, manufacturing and general economic activity levels prompted by COVID-19 and related governmental and societal actions have reduced the demand for oil-based products such as gasoline, jet fuel and other refined products, space to store oil and condensate production is reaching or may reach capacity in some areas, which is prompting purchasers of oil and condensate to reduce future purchase levels and, in some cases, to claim force majeure for purchases already contracted. These situations may lead to production greater than storage capacity later in the year, depending on weather and other seasonal factors. In addition, commodity pricing challenges may cause our production costs to exceed the revenues associated with such production. To the extent that this decreased demand for our commodities continues and our margins are not at acceptable levels or storage for our production is not available, we may have to reduce production from or completely shut in portions of our currently producing wells. The inability to sell our production or the decision to potentially reduce or shut in our production could materially and adversely affect our operating results and our ability to comply with the financial covenants under our credit facility.

 

There is uncertainty around the extent and duration of the disruption. The degree to which the COVID-19 pandemic or any other public health crisis adversely impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, its impact on the economy and market conditions, and how quickly and to what extent normal economic and operating conditions can resume. Therefore, while we expect this matter will likely disrupt our operations, the degree of the adverse financial impact cannot be reasonably estimated at this time.

 

 

 

 

 

 

 -20-

 

 

FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q, including this section, includes certain statements that may be deemed "forward-looking statements" within the meaning of federal securities laws. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including future sources of financing and other possible business developments, are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties and could be affected by a number of different factors, including the Company's failure to secure short and long-term financing necessary to sustain and grow its operations, increased competition, changes in the markets in which the Company participates and the technology utilized by the Company and new legislation regarding environmental matters. These risks and other risks that could affect the Company's business are more fully described in reports the Company files with the SEC, including its Form 10-K for the year ended December 31, 2019. Actual results may vary materially from the forward-looking statements.

 

The Company undertakes no duty to update any of the forward-looking statements in this Form 10-Q.

 

MATERIAL RISKS

The Company has incurred significant losses from operations and there is no assurance that it will achieve profitability or obtain the funds necessary to finance continued operations. For other material risks, see the Company's Form 10-K for the year ended December 31, 2019, which was filed on March 30, 2020.

 

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

 

Item 4. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision of the Company's President (and principal financial officer) of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rules 13a - 15(e) and 15d - 15(e). Based on this evaluation, the Company's President (and principal financial officer) has concluded that the disclosure controls and procedures as of the end of the period covered by this report are effective.

 

 

 

 

 

 -21-

 

 

PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

 

None.

 

Item 1A.Risk Factors

 

Not applicable.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

Item 5.Other Information

 

None.

 

Item 6.Exhibits

 

31.1  

Certification of Thomas Pritchard, Chief Executive Officer, pursuant to Rules 13a - 14 (a) and 15(d) - 14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(1) (31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith).

 

31.2   Certification of Michael R. Morrisett, President and principal financial officer, pursuant to Rules 13a - 14 (a) and 15(d) - 14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(1) (31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith).
   
32.1

Certification of Thomas Pritchard, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith).

 

32.2

Certification of Michael R. Morrisett, President and principal financial officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith).

 

101 Financial Statements for XBRL format (submitted herewith).

 

 

 

 

 -22-

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

Empire Petroleum Corporation

 

 
       
Date:   August 14, 2020 By:   /s/ Michael R. Morrisett  
    Michael R. Morrisett  
    President  
    (principal financial officer)  

 

 

       
Date:   August 14, 2020 By:   /s/ Thomas Pritchard  
    Thomas Pritchard
    Chief Executive Officer  
       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -23-

 

EXHIBIT INDEX

 

 

 

 

NO.                   DESCRIPTION

 

 

31.1   Certification of Thomas Pritchard, Chief Executive Officer, pursuant to Rules 13a - 14 (a) and 15(d) - 14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(1) (31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith).
   
31.2   Certification of Michael R. Morrisett, President (principal financial officer), pursuant to Rules 13a - 14 (a) and 15(d) - 14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(1) (31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (submitted herewith).
   
32.1 Certification of Thomas Pritchard, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith).

 

32.2 Certification of Michael R. Morrisett, President (principal financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (submitted herewith).

 

101 Financial Statements for XBRL format (submitted herewith).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

-24-

 

 

EX-31.1 2 exh31-1_18424.htm 302 CERTIFICATION OF THOMAS PRITCHARD, CHIEF EXECUTIVE OFFICER

Exhibit 31.1

 

CERTIFICATION

 

I, Thomas Pritchard, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Empire Petroleum Corporation;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

August 14, 2020   /s/ Thomas Pritchard
    Thomas Pritchard
Chief Executive Officer

EX-31. 3 exh31-2_18424.htm 302 CERTIFICATION OF MICHAEL R. MORRISETT, PRESIDENT AND PRINCIPAL FINANCIAL OFFICER

Exhibit 31.2

 

CERTIFICATION

 

I, Michael R. Morrisett, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Empire Petroleum Corporation;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

August 14, 2020   /s/ Michael R. Morrisett
   

Michael R. Morrisett

President (principal financial officer)

EX-32.1 4 exh32-1_18424.htm 906 CERTIFICATION OF THOMAS PRITCHARD, CHIEF EXECUTIVE OFFICER

Exhibit 32.1

 

 

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the quarterly report of Empire Petroleum Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas Pritchard, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

August 14, 2020   /s/ Thomas Pritchard
    Thomas Pritchard
Chief Executive Officer

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.

 

 

 

EX-32.2 5 exh32-2_18424.htm 906 CERTIFICATION OF MICHAEL R. MORRISETT, PRESIDENT AND PRINCIPAL FINANCIAL OFFICER

Exhibit 32.2

 

 

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the quarterly report of Empire Petroleum Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael R. Morrisett, President (principal financial officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

August 14, 2020   /s/ Michael R. Morrisett
   

Michael R. Morrisett

President (principal financial officer)

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.

 

 

 

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or the "Company") have been prepared in accordance with United States generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, the results of operations, and the cash flows for the interim period are included. All adjustments are of a normal, recurring nature. Operating results for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The information contained in this Form 10-Q should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2019 which are contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 30, 2020.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The Company has incurred significant losses in recent years. The continuation of the Company as a going concern is dependent upon the ability of the Company to attain future profitable operations and/or additional debt or equity financing until profitable operations are achieved. These financial statements have been prepared on the basis of United States generally accepted accounting principles applicable to a company with continuing operations, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. Management believes the going concern assumption to be appropriate for these financial statements. If the going concern assumption were not appropriate for these financial statements, then adjustments might be necessary to adjust the carrying value of assets and liabilities and reported expenses.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 0px; FONT: 10pt times new roman, times, serif; MARGIN-LEFT: 0px; text-align:justify;">The Company&#8217;s impairment assessment of proved and unproved mineral properties is based on several factors including oil and gas spot market prices and estimated futures prices that existed at June 30, 2020. <font style="letter-spacing:2pt">In</font>2020, crude oil prices in both the spot market and futures market experienced significant volatility. For the six months ended June 30, 2020 the Company recorded an impairment expense of $800,452 as a result of the decline in oil prices (See Note 3). Further, the effect of lower crude oil prices on the Company&#8217;s future financial position or results of operations is not currently determinable due to broader economic and industry uncertainties, including the impact to the operators and other working interest owners of the properties in which the Company owns mineral interests.</p><p style="font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="font:10pt times new roman, times, serif;margin:0px">In the event crude oil or natural gas prices remain low, there is the risk that, among other things:</p><p style="font:10pt times new roman, times, serif;margin:0.1pt 0px 0px">&nbsp;</p><table style="border-spacing:0;margin-bottom:0px;margin-top:0px;font:10pt times new roman, times, serif;width:100%" cellpadding="0"> <tr style="height:15px;vertical-align:top"> <td style="width:42;"></td> <td style="width:18;"><font style="font-family:symbol">&#183;</font></td> <td style="PADDING-RIGHT: 15.55pt;">the Company&#8217;s revenues, cash flows and profitability may decline substantially, which could also indirectly impact expected production by reducing the amount of funds available to acquire future mineral interests;</td></tr></table> <p style="font:10pt times new roman, times, serif;margin:0px 15.55pt 0px 60pt">&nbsp;</p><table style="border-spacing:0;margin-bottom:0px;margin-top:0px;font:10pt/98% times new roman, times, serif;width:100%" cellpadding="0"> <tr style="height:15px;vertical-align:top"> <td style="width:42;"></td> <td style="width:18;"><font style="font-family:symbol">&#183;</font></td> <td style="PADDING-RIGHT: 6.65pt;">reserves relating to the Company&#8217;s proved properties may become uneconomic to produce resulting in impairment of proved properties; and</td></tr></table> <p style="FONT: 10pt/98% times new roman, times, serif; MARGIN: 0px 6.65pt 0px 0px; text-align:justify;">&nbsp;</p><table style="border-spacing:0;margin-bottom:0px;margin-top:0.15pt;font:10pt times new roman, times, serif;width:100%" cellpadding="0"> <tr style="height:15px;vertical-align:top"> <td style="width:42;"></td> <td style="width:18;"><font style="font-family:symbol">&#183;</font></td> <td style="PADDING-RIGHT: 5pt;">operators and other working interest owners are unable to execute their drilling and exploration programs resulting in lower production or inability to prove reserves on unproved properties</td></tr></table> <p style="font:10pt times new roman, times, serif;margin:0.5pt 0px 0px">&nbsp;</p><p style="font:10pt times new roman, times, serif;margin:0px 11.4pt 0px 0px">The occurrence of certain of these events may have a material adverse effect on the Company's business, results of operations and financial condition.</p><p style="font:10pt times new roman, times, serif;margin:0px 11.4pt 0px 0px">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">In early March 2020, there was a global outbreak of COVID-19 that continued into the second quarter and has resulted in changes in global supply and demand of certain mineral and energy products. These changes, including the magnitude and length of the economic downturn and any potential resulting direct and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company&#8217;s acquisition and project development activities, and cash flows and liquidity.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;"><strong><em>Reclassification of prior year presentation.</em></strong> Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Balance Sheet for the year ended December 31, 2019 to reclassify certain utility and other deposits in the amount of $118,177 which had previously been included in prepaids.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The continuation of the Company is dependent upon the ability of the Company to raise capital and attain future profitable operations. The ultimate recoverability of the Company's investment in oil and natural gas interests is dependent upon the existence and discovery of economically recoverable oil and natural gas reserves, the ability of the Company to obtain necessary financing to further develop the interests, and the ability of the Company to attain future profitable production.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">As of June 30, 2020, the Company had $285,813 of cash and working capital deficit of $9,412,190, which includes the net balance of the Senior Revolver Loan Agreement of $8,397,253 which matures March 27, 2021. The Company has proved reserves which have been acquired within the last two years. The Company plans to continue to look for oil and natural gas investments and will use a combination of debt and equity financing to fund the acquisitions. The Company expects to also incur costs related to evaluating and acquiring oil and natural gas acquisitions for the foreseeable future. It is expected that management will attempt to raise additional capital for future investment and working capital opportunities.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">Compensation of Officers and Employees</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">As of June 30, 2020, the Company had three employees. No independent Board members received compensation from the Company in the first&nbsp;six months of 2020 or 2019. For the six months ended June 30, 2020, the Company paid Mr. Morrisett and Mr. Pritchard $116,000 each for services rendered. For the six months ended June 30, 2019, the Company paid Mr. Morrisett $127,450 and Mr. Pritchard $131,450 for services rendered excluding the value of options. In addition, as of June 30, 2020 Mr. Pritchard has outstanding advances of $26,017.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px"><strong><em>Principles of consolidation.</em></strong> The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"), and Empire Texas, LLC (&#8220;Empire Texas&#8221;). All material intercompany balances and transactions have been eliminated.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px"><strong><em>Use of estimates in the preparation of financial statements.</em></strong> Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs. Other significant estimates include, but are not limited to, asset retirement obligations, fair value of assets purchased in acquisitions, and taxes.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px"><strong><em>Interim financial statements.</em></strong> The accompanying consolidated financial statements of the Company have not been audited by the Company's independent registered public accounting firm. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px"><strong><em>Inventory. &nbsp;</em></strong>Inventory consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe which has not yet been put into production.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px"><strong><em>Revenue recognition.</em></strong> The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated on the Company's consolidated statements of operations. The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company's performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i)&nbsp;transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At June 30, 2020, the Company had receivables related to contracts with customers of approximately $590,000.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0px 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px"><strong><em>Fair value measurements.</em></strong> The Financial Accounting Standards Board ("FASB") fair value measurement standards define fair value, establish a consistent framework for measuring fair value and establish a fair value hierarchy based on the observability of inputs used to measure fair value.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px 0.3in"><em>Convertible debt - </em>The carrying value of the convertible debt approximate fair value as of December 31, 2019. As of June 30, 2020 all of the convertible debt had been converted to shares of the Company&#8217;s common stock. Management's estimates are based on the assessment of qualitative factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB ASC 820.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px 0.3in">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px"><em>Oil and natural gas properties - </em>The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved and unproved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. For significant purchases, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px">The fair value of asset retirement obligations is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px">The inputs used to value oil and natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0.05pt 0.3in 0px"><em>Financial instruments and other- </em>The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying value due to their short-term nature.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">In March 2019, the Company, through its subsidiary, Empire North Dakota, LLC, purchased oil and natural gas properties in Montana and North Dakota (See Note 7).</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">On January 27, 2020, the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Bill of Sale and Assignment to purchase lease interests in approximately 4,936 acres in Montana for $500,000.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">On February 10, 2020, the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold overriding royalty interests for leases it owned in Montana for $325,000 to a consultant of the Company. As of June 30, 2020 $200,000 of the sales price had been received with the balance pending completion of title work.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">On February 17, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold all of its interest in leases of approximately 337 acres in Montana for $1,010,400.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, purchased oil and natural gas properties in Texas (see Note 5).</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">During the six months ended June 30, 2020, NYMEX strip prices experienced significant volatility, resulting in a significant decrease in value of the Company&#8217;s economically recoverable proved oil and natural gas reserves. As such, the carrying amount of the Company&#8217;s proved oil and natural gas properties exceeded the expected undiscounted future net cash flows for certain leases, resulting in impairment charges against earnings of $800,452. These impairment charges are included in impairments of long-lived assets on the consolidated statement of operations for the six months ended June 30, 2020. The Company did not recognize an impairment of proved oil and natural gas properties during the six months ended June 30, 2019.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt/12.55pt times new roman, times, serif;margin:3pt 0px 9pt">The aggregate capitalized costs of oil and natural gas properties as of June 30, 2020, are as follows:&nbsp;</p><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:80%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td style="width:70%;">Proved producing wells</td> <td style="width:10%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:18%;text-align:right;">5,284,041</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Proved undeveloped</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">2,232,458</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Lease, well and gathering &nbsp;equipment</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">1,705,092</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Asset retirement obligation</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">14,988,534</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;">Unproved leasehold costs</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">492,741</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Gross capitalized costs</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">24,702,866</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;text-align:left;">Less: accumulated depreciation, depletion and impairment</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">(4,918,808</td> <td style="PADDING-BOTTOM: 1pt;text-align:left;">)</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">19,784,058</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table> <p style="text-align:justify;font:10pt courier new, courier, monospace;margin:0px">&nbsp;</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px">Other property and equipment consists of office furniture and equipment.</p><p style="text-align:justify;font:10pt times new roman, times, serif;margin:0px;text-indent:4in">&nbsp;</p><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:80%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td style="width:70%;">Oher property and equipment, at cost</td> <td style="width:10%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:18%;text-align:right;">14,456</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;">Less: accumulated depreciation</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">(3,400</td> <td style="PADDING-BOTTOM: 1pt;text-align:left;">)</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt;">Oher property and equipment, net</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">11,056</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN:justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On March 3, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Purchase and Sale Agreement (&#8220;the Agreement&#8221;) with Ovintiv USA, Inc. and several related companies to purchase certain oil and natural gas properties in Montana and North Dakota comprising 26,600 net acres with 94 active wells. The purchase price is $8,500,000, subject to adjustments with an effective date of January 1, 2020 and a closing date of April 30, 2020.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The Company has made an $850,000 deposit relating to the purchase which is recorded as a deposit on its balance sheet. Due to the COVID pandemic, and governmental state of emergency orders related thereto, the Company was unable to meet with and obtain financing to complete the purchase from its lenders. As of June 30, 2020 the Agreement has been terminated. The Company is currently in communication with the Seller for return of the deposit. The Company may not be successful in obtaining return of the entire deposit and has recorded an allowance of $725,000 based on its assessment of the negotiations.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a Purchase and Sale Agreement (&#8220;the Agreement&#8221;) with Pardus Oil &amp; Gas, LLC and Pardus Oil &amp; Gas Operating GP, LLC (collectively &#8220;the Seller&#8221;) to purchase certain oil and natural gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines and related facilities and equipment, and all general and limited partner interest in Pardus Oil &amp; Gas Operating, LP. The purchase price included the assumption of certain obligations and a contingent payment not to exceed $2,000,000 reduced by certain revenue suspense amounts. The contingent payment is based on monthly oil production in excess of a specified level from the purchased properties and an average monthly realized oil price of $40 or more per barrel of oil through December 31, 2022. The transaction closed on April 7, 2020.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The following table sets forth the Company's purchase price allocation:</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt/0.05pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:80%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td colspan="2">&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Fair Value of Assets Acquired</td> <td>&nbsp;</td> <td colspan="2">&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;width:70%;">Oil and natural gas properties</td> <td style="width:10%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:18%;text-align:right;">1,935,366</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Inventory of oil in tanks</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">147,297</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Deposits</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">378,000</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Equipment and gathering lines</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">109,200</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt; PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Asset retirement obligation asset</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">9,508,484</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 5.75pt; TEXT-INDENT: 15pt;">Total Assets Acquired</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">12,078,347</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold; PADDING-LEFT: 5.75pt;">Fair Value of Liabilities Assumed</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Accounts payable, net</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">20,456</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Note payable &#8211; current</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">378,000</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Royalty suspense</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">1,185,587</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt; PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Asset retirement obligations</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">9,508,484</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 5.75pt; TEXT-INDENT: 15pt;">Total liabilities assumed</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">11,092,527</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 5.75pt; TEXT-INDENT: 15pt;">Total consideration</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">985,820</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table> <p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The fair values of assets acquired and liabilities assumed were based on the following key inputs:</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;"><em>Oil and natural gas properties</em></p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv)&nbsp;future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The fair value of asset retirement obligations totaled $9,508,484 and is included with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The total consideration consists of a contingent payment to the seller which is due based on monthly production of oil and natural gas through December 31, 2022 and a monthly average price of $40 or higher per barrel.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;"><em>Financial instruments and other</em></p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The fair values determined for accounts payable - trade were equivalent to the carrying value due to their short-term nature.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">Accounts payable - trade includes $20,456 of liabilities primarily related to well activity prior to close.</p></div> <div style="TEXT-ALIGN:justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt timesnewromanpsmt; MARGIN: 0px; text-align:left;">On June 10, 2019, the Company received a process verbal and related sheriff's deed dated as of May 29, 2019 (the "Sheriff's Deed") pertaining to two wells in St. Landry Parish purchased from Business First Bancshares, Inc. d/b/a Business First Bank ("Business First").</p><p style="FONT: 10pt timesnewromanpsmt; MARGIN: 0px; text-align:left;">&nbsp;</p><p style="FONT: 10pt timesnewromanpsmt; MARGIN: 0px; text-align:justify;">Pursuant to the Sheriff's Deed, the Company acquired certain oil and natural gas properties located in St. Landry Parish, Louisiana, including operated working interest in two producing wells. The Company purchased Business First's position as the superior lienholder and seizing creditor of such oil and natural gas properties, which were owned by Warhorse Oil &amp; Gas, LLC, for $450,000 plus $16,993 sheriff fees. The payment was paid from loan proceeds under the loan agreement with CrossFirst Bank (see Note 9).</p><p style="FONT: 10pt timesnewromanpsmt; MARGIN: 0px; text-align:left;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0.05pt 0px 0px; text-align:justify;">The Company treated the acquisition as an asset purchase. An amount equal to $73,968 was allocated to lease and well equipment and $378,110 was allocated to producing properties. An asset retirement obligation of $19,732 was recorded in conjunction with the purchase.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">On March 28, 2019, the Company purchased oil producing properties from EnergyQuest II, LLC ("EnergyQuest") for a purchase price of $5,600,000. The effective date of the transaction was January 1, 2019. After certain adjustments related to the effective date, the total proceeds paid to EnergyQuest were $5,646,126.&nbsp; Such proceeds were paid from borrowing on notes payable and sales of unregistered securities of the Company.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The following table sets forth the Company's purchase price allocation:</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><table style="border-spacing:0;font-size:10pt;width:100%" cellpadding="0"> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px"><strong>Fair Value of Assets Acquired</strong></p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td colspan="2"> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="width:70%;vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Accounts receivable</p></td> <td style="width:10%;"> <p style="margin:0px">&nbsp;</p></td> <td style="width:1%;vertical-align:bottom;"> <p style="margin:0px">$</p></td> <td style="width:18%;vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">1,308,748</p></td> <td style="width:1%;"> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Inventory of oil in tanks</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">438,321</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Oil properties</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;"> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">10,878,429</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Total Assets Acquired</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="margin:0px">$</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">12,625,498</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px"><strong>Fair Value of Liabilities Assumed</strong></p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Accounts payable &#8211; trade</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="vertical-align:bottom;"> <p style="margin:0px">$</p></td> <td style="vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">1,861,433</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Asset retirement obligations</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;"> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">5,117,939</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Total liabilities assumed</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="margin:0px">$</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">6,979,372</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px;text-indent:15pt">Total consideration paid</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="margin:0px">$</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="MARGIN: 0px; text-align:right;">5,646,126</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr></table> <p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The fair values of assets acquired and liabilities assumed were based on the following key inputs:</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;"><em>Oil and natural gas properties</em></p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv)&nbsp;future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The fair value of asset retirement obligations totaled $5,117,939 and is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;"><em>Financial instruments and other</em></p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The fair values determined for accounts receivable and accounts payable - trade were equivalent to the carrying value due to their short-term nature.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">Accounts payable - trade includes $1,861,433 of liabilities primarily related to well activity prior to close.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The Company uses derivative financial instruments to manage its exposure to commodity price fluctuations. Commodity derivative instruments are used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells. The Company&#8217;s derivative financial instruments consist of oil and natural gas swaps.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The Company does not enter into derivative financial instruments for speculative or trading purposes.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The Company does not designate its derivative instruments to qualify for hedge accounting. Accordingly, the Company reflects changes in the fair value of its derivative instruments in its consolidated statements of operations as they occur. Unrealized gains and losses related to the swap contracts are recognized and recorded as an asset or liability on the Company&#8217;s balance sheet.&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The following table summarizes the net realized and unrealized amounts reported in earnings related to the commodity derivative instruments for the three and six months ended June 30, 2020 and 2019:</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:75%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Three months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Six months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;text-align:left;">Gain (loss) on derivatives:</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="width:24%;">Oil derivatives</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">(402,374</td> <td style="width:1%;text-align:left;">)</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">492,548</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">2,106,671</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">424,952</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;text-align:left;">Natural gas derivatives</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">&#8212;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">8,180</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">&#8212;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">7,417</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 2.5pt;">Total</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">(402,374</td> <td style="PADDING-BOTTOM: 2.5pt;text-align:left;">)</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">500,728</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">2,106,671</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">432,369</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr></table> <p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The following represents the Company&#8217;s net cash receipts from derivatives for the three and six months ended June 30, 2020 and 2019:</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:75%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Three months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Nine months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;text-align:left;">Net cash received from payments on derivatives</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="width:24%;text-align:left;">Oil derivatives</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">510,609</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">74,154</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">1,043,894</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">93,503</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;text-align:left;">Natural gas derivatives</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">4,305</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">&#8212;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">4,711</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 2.5pt;text-align:left;">Total</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">510,609</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">78,459</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">1,043,894</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">98,214</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table> <p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">The following table sets forth the Company&#8217;s outstanding derivative contracts at June 30, 2020. The Company has no outstanding natural gas derivatives. All of the Company&#8217;s derivatives are expected to settle by October 2021:</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><table style="border-spacing:0;font:10pt times new roman, times, serif;width:100%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>1<sup>st</sup> Quarter </strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>2<sup>nd</sup> Quarter</strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>3<sup>rd</sup> Quarter</strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>4<sup>th</sup> Quarter </strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="TEXT-DECORATION: underline; FONT-WEIGHT: bold;">2020</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Oil Swaps:</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="width:40%;">Volume (MBbl)</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">&#8212;</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">&#8212;</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">16.02</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">15.78</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Price per Bbl</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">58.39</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">55.18</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="TEXT-DECORATION: underline; FONT-WEIGHT: bold;">2021</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Oil Swaps:</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Volume (MBbl)</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">15.26</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">15.18</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">5.20</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Price per Bbl</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">49.40</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">50.87</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">38.25</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN:justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">In February 2019, the Company entered into five unsecured promissory note agreements with accredited investors totaling $90,000. The notes were due May 1, 2019, and accrued interest at 8%. One of the notes, in the amount of $15,000 was issued to Michael R. Morrisett, the Company's President. These notes and the related interest were paid in May 2019.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On September 20, 2018 the Company entered into a Senior Revolver Loan Agreement (&#8220;the Agreement&#8221;) with CrossFirst Bank (&#8220;CrossFirst&#8221;). The Agreement was amended March 27, 2019 (the &#8220;Amended Agreement&#8221;). The Amended Agreement commitment amount is $9,000,000 which is reduced by $150,000 per calendar quarter ($8,400,000 at June 30, 2020) and the maximum amount that can be advanced under the Agreement is $20,000,000 and includes interest at Wall Street Journal Prime plus 150 basis points (4.75% as of June 30, 2020). The Agreement matures on March 27, 2021. Collateral for the loan is a lien on all of the assets of the Company&#8217;s wholly owned subsidiaries, Empire Louisiana and Empire North Dakota, and a first priority mortgage lien, pledge of and security interest in not less than 80% of Empire Louisiana&#8217;s and Empire North Dakota&#8217;s producing oil, gas and other leasehold and mineral interests. The Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve month basis. The Company is not in compliance with the funded debt to EBITDAX covenant of the Agreement at June 30, 2020. As of June 30, 2020, the Company has an outstanding loan balance of $8,397,253 under the Agreement.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">In January 2020 three of the Senior Unsecured Promissory Note investors exercised the conversion feature and converted their $102,500 notes for 1,025,000 shares of the Company's common stock. All of the Senior Unsecured Promissory Notes have been converted to common stock of the Company as of March 31, 2020.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On April 1, 2020, in conjunction with the purchase of assets from Pardus Oil &amp; Gas, LLC (see Note 5), the Company entered into a unsecured promissory note agreement with the seller in the amount of $378,000. The note is payable in one installment on April 1, 2021 and bears interest at the one-year LIBOR rate (1% as of June 30, 2020).</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On May 5, 2020, the Company, through its wholly owned subsidiary, Pardus Oil &amp; Gas Operating, LP, received an SBA Payroll Protection Plan (&#8220;PPP&#8221;) loan for $160,700. The loan matures on May 5, 2022 and has an interest rate of 1%. There are no payments due until November 5, 2020 at which time the payment amount will be determined based on the portion of the loan which has not been forgiven under criteria established by the SBA, using an eighteen-month amortization. The Company expects that the majority of the loan amount will be forgiven based on currently published guidelines of the United States Small Business Administration.</p></div> <div style="TEXT-ALIGN:justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">Diluted Earnings per Share ("EPS") gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on losses. As a result, if there is a loss from continuing operations, Diluted EPS is computed in the same manner as Basic EPS. At March 31, 2020 and 2019, the Company had 5,004,167 and 4,167 respectively, options outstanding that were not included in the calculation of earnings per share for the periods then ended. Such financial instruments may become dilutive and would then need to be included in future calculations of Diluted EPS. At June 30, 2020 and 2019, the outstanding options were considered anti-dilutive since the strike prices were above the market price and since the Company has incurred losses year to date.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">In March 2019, 1,446,668 outstanding $0.15 warrants were converted to shares of common stock of the Company. Proceeds received from the conversion was $217,000 including $50,000 of notes payable conversion by Mr. Kamin, a board member.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">During May 2019, the Company issued warrants to purchase 300,000 shares of its common stock for $0.17 per share which expire on December 31, 2021 to a former employee for business assistance provided. The value allocated&nbsp;to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:&nbsp; no dividend yield, expected annual volatility of 217%, risk free interest rate of 1.92% and an expected useful life of 31 months. The fair value of the warrants of $58,380 was recorded as compensation expense and allocated to Paid in Capital.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the "Stock Option Plan"). The total number of shares of common stock that may be issued pursuant to stock options under the Stock Option Plan is 10,000,000. Further, on April 3, 2019 the Company granted Mr. Pritchard and Mr. Morrissett each, options to purchase 2,500,000 shares of common stock of the Company at an exercise price of $0.33 per share. The options vest in three installments with 1,250,000 vesting immediately and 625,000 vesting each in April 2020 and April 2021. All of the options expire in April, 2029. The value allocated&nbsp;to the vested options was the fair value determined using the Black-Scholes option valuation with the following assumptions:&nbsp; no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5.375 years. The fair value of the vested options of $812,500 was recorded as compensation expense and allocated to Paid in Capital in 2019. In 2020, the fair value of the options which vested in April 2020 of $406,250 was recorded as compensation expense and allocated to Paid in Capital. The fair of the remaining unvested options is $406,250 as of June 30, 2020.</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On April 3, 2019 the Board of Directors of the Company amended certain warrant certificates which had been issued to Mr. Kamin covering 3,000,000 warrants to purchase common stock of the Company. The original warrants expired on December 31, 2021 and had exercise prices of $0.15 and $0.25 for 500,000 and 2,500,000 shares, respectively. The warrants were extended to expire on April 2, 2029. The value allocated&nbsp;to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:&nbsp; no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5 years. The fair value of the warrants of $620,750 was recorded as compensation expense and allocated to Paid in Capital.</p></div> <div style="TEXT-ALIGN:justify; FONT: 10pt TIMES NEW ROMAN"><p style="FONT: 10pt times new roman, times, serif; MARGIN: 0px; text-align:justify;">On August 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a joint development agreement (the &#8220;Agreement&#8221;) with Petroleum &amp; Independent Exploration, LLC and related entities (&#8220;PIE&#8221;) dated August 1, 2020. Under the terms of the Agreement, PIE will perform recompletion and workover on specified wells owned by Empire. To fund the work, PIE entered into a term loan agreement with Empire dated August 1, 2020, whereby PIE will loan up to $2,000,000, at an interest rate of 6% per annum, maturing August 7, 2024 unless terminated earlier by PIE. On August 7, 2020, $150,000 was advanced to Empire from the loan. As part of the Agreement, Empire will assign to PIE a combined 85% working and revenue interest in the affected wells. Of the assigned interest, 70% will be used to repay the obligations under the term loan agreement. Once the term loan is repaid, PIE will assign a 35% working and revenue interest to Empire and retain a 50% working and revenue interest. In addition, PIE and Empire entered into a Securities Purchase Agreement (&#8220;Securities Agreement&#8221;) whereby PIE has agreed to purchase for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d) warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up to 11,066,667 shares of Empire common stock at an exercise price of $0.141 per share. PIE is obligated to exercise the $0.20 warrants within 45 days of when 3 month trailing average production from the Empire Texas properties have increased by 20% over the trailing 3 month trailing average production as of July 2020. PIE can only exercise the $0.25 warrants once all existing non-PIE outstanding warrants to purchase Empire common stock have been exercised or lapsed. For the $0.141 warrants, PIE may initially acquire 7,533,333 shares of Empire common stock, however the amount may be increased if any existing non-PIE warrants are exercised prior to December 31, 2020.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"), and Empire Texas, LLC (&#8220;Empire Texas&#8221;). All material intercompany balances and transactions have been eliminated.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs. Other significant estimates include, but are not limited to, asset retirement obligations, fair value of assets purchased in acquisitions, and taxes.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">The accompanying consolidated financial statements of the Company have not been audited by the Company's independent registered public accounting firm. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">Inventory consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe which has not yet been put into production.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated on the Company's consolidated statements of operations. The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company's performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i)&nbsp;transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At June 30, 2020, the Company had receivables related to contracts with customers of approximately $590,000.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><p style="MARGIN: 0px; text-align:justify;">The Financial Accounting Standards Board ("FASB") fair value measurement standards define fair value, establish a consistent framework for measuring fair value and establish a fair value hierarchy based on the observability of inputs used to measure fair value.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;"><em>Convertible debt - </em>The carrying value of the convertible debt approximate fair value as of December 31, 2019. As of June 30, 2020 all of the convertible debt had been converted to shares of the Company&#8217;s common stock. Management's estimates are based on the assessment of qualitative factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB ASC 820.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;"><em>Oil and natural gas properties - </em>The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved and unproved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. For significant purchases, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The fair value of asset retirement obligations is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;">The inputs used to value oil and natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.</p><p style="MARGIN: 0px; text-align:justify;">&nbsp;</p><p style="MARGIN: 0px; text-align:justify;"><em>Financial instruments and other- </em>The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying value due to their short-term nature.</p></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:80%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td style="width:70%;">Oher property and equipment, at cost</td> <td style="width:10%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:18%;text-align:right;">14,456</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;">Less: accumulated depreciation</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">(3,400</td> <td style="PADDING-BOTTOM: 1pt;text-align:left;">)</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt;">Oher property and equipment, net</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">11,056</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:80%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td style="width:70%;">Proved producing wells</td> <td style="width:10%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:18%;text-align:right;">5,284,041</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Proved undeveloped</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">2,232,458</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Lease, well and gathering &nbsp;equipment</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">1,705,092</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Asset retirement obligation</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">14,988,534</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;">Unproved leasehold costs</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">492,741</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Gross capitalized costs</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">24,702,866</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;text-align:left;">Less: accumulated depreciation, depletion and impairment</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">(4,918,808</td> <td style="PADDING-BOTTOM: 1pt;text-align:left;">)</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">19,784,058</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font-size:10pt;width:100%" cellpadding="0"> <tr style="height:15px"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm"><strong>Fair Value of Assets Acquired</strong></p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td colspan="2"> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="width:70%;vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Accounts receivable</p></td> <td style="width:10%;"> <p style="margin:0px">&nbsp;</p></td> <td style="width:1%;vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm">$</p></td> <td style="width:18%;vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">1,308,748</p></td> <td style="width:1%;"> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#ffffff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Inventory of oil in tanks</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">438,321</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Oil properties</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;"> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">10,878,429</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#ffffff"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Total Assets Acquired</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm">$</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">12,625,498</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#ffffff"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm"><strong>Fair Value of Liabilities Assumed</strong></p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#ffffff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Accounts payable &#8211; trade</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm">$</p></td> <td style="vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">1,861,433</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Asset retirement obligations</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;"> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 1px solid;vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">5,117,939</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#ffffff"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Total liabilities assumed</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm">$</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">6,979,372</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#ffffff"> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr> <tr style="height:15px;background-color:#cceeff"> <td style="vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm;text-indent:15pt">Total consideration paid</p></td> <td> <p style="margin:0px">&nbsp;</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="margin:0px 0px 0px 0cm">$</p></td> <td style="BORDER-BOTTOM: 3px double;vertical-align:bottom;"> <p style="MARGIN: 0px 0px 0px 0cm; text-align:right;">5,646,126</p></td> <td> <p style="margin:0px">&nbsp;</p></td></tr></table></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:80%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td colspan="2">&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Fair Value of Assets Acquired</td> <td>&nbsp;</td> <td colspan="2">&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;width:70%;">Accounts receivable</td> <td style="width:10%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:18%;text-align:right;">1,308,748</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Inventory of oil in tanks</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">438,321</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt; PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Oil properties</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">10,878,429</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 5.75pt; TEXT-INDENT: 15pt;">Total Assets Acquired</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">12,625,498</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Fair Value of Liabilities Assumed</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Accounts payable &#8211; trade</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">1,861,433</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt; PADDING-LEFT: 8.5pt; TEXT-INDENT: 15pt;">Asset retirement obligations</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">5,117,939</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 5.75pt; TEXT-INDENT: 15pt;">Total liabilities assumed</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">6,979,372</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-LEFT: 5.75pt; TEXT-INDENT: 5pt;">&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 2.5pt; PADDING-LEFT: 5.75pt; TEXT-INDENT: 15pt;">Total consideration paid</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">5,646,126</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:75%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Three months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Six months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;text-align:left;">Gain (loss) on derivatives:</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="width:24%;">Oil derivatives</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">(402,374</td> <td style="width:1%;text-align:left;">)</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">492,548</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">2,106,671</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">424,952</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;text-align:left;">Natural gas derivatives</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">&#8212;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">8,180</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">&#8212;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">7,417</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 2.5pt;">Total</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">(402,374</td> <td style="PADDING-BOTTOM: 2.5pt;text-align:left;">)</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">500,728</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">2,106,671</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">432,369</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font:10pt times new roman, times, serif;margin-left:auto;margin-right:auto;width:75%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Three months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="6">Nine months ended June 30,</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2020</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2">2019</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;text-align:left;">Net cash received from payments on derivatives</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="width:24%;text-align:left;">Oil derivatives</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">510,609</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">74,154</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">1,043,894</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;text-align:left;">$</td> <td style="width:14%;text-align:right;">93,503</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="PADDING-BOTTOM: 1pt;text-align:left;">Natural gas derivatives</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">4,305</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">&#8212;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid;text-align:right;">4,711</td> <td style="PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 2.5pt;text-align:left;">Total</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">510,609</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">78,459</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">1,043,894</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:left;">$</td> <td style="BORDER-BOTTOM: black 2.5pt double;text-align:right;">98,214</td> <td style="PADDING-BOTTOM: 2.5pt;">&nbsp;</td></tr></table></div> <div style="TEXT-ALIGN: justify; FONT: 10pt TIMES NEW ROMAN"><table style="border-spacing:0;font:10pt times new roman, times, serif;width:100%" cellpadding="0"> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>1<sup>st</sup> Quarter </strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>2<sup>nd</sup> Quarter</strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>3<sup>rd</sup> Quarter</strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td> <td style="BORDER-BOTTOM: black 1pt solid; FONT-WEIGHT: bold;text-align:center;" colspan="2"><strong>4<sup>th</sup> Quarter </strong></td> <td style="FONT-WEIGHT: bold; PADDING-BOTTOM: 1pt;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="TEXT-DECORATION: underline; FONT-WEIGHT: bold;">2020</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Oil Swaps:</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="width:40%;">Volume (MBbl)</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">&#8212;</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">&#8212;</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">16.02</td> <td style="width:1%;">&nbsp;</td> <td style="width:3%;">&nbsp;</td> <td style="width:1%;">&nbsp;</td> <td style="width:10%;text-align:right;">15.78</td> <td style="width:1%;">&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Price per Bbl</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">58.39</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">55.18</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="TEXT-DECORATION: underline; FONT-WEIGHT: bold;">2021</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td style="FONT-WEIGHT: bold;">Oil Swaps:</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Volume (MBbl)</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">15.26</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">15.18</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">5.20</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td></tr> <tr style="height:15px;vertical-align:bottom"> <td>Price per Bbl</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">49.40</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">50.87</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:left;">$</td> <td style="text-align:right;">38.25</td> <td>&nbsp;</td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="text-align:right;">&#8212;</td> <td>&nbsp;</td></tr></table></div> 26017 -9412190 118177 -8397253 116000 127450 116000 131450 590000 5284041 2232458 1705092 14988534 492741 24702866 -4918808 19784058 14456 -3400 200000 325000 1010400 500000 850000 725000 8500000 2020-01-01 2020-04-30 20456 378000 1185587 9508484 11092527 985820 1935366 147297 378000 109200 9508484 12078347 20456 40 9508484 Purchase certain oil and natural gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines and related facilities and equipment, and all general and limited partner interest in Pardus Oil & Gas Operating, LP. The purchase price included the assumption of certain obligations and a contingent payment not to exceed $2,000,000 reduced by certain revenue suspense amounts. The contingent payment is based on monthly oil production in excess of a specified level from the purchased properties and an average monthly realized oil price of $40 or more per barrel of oil through December 31, 2022 378110 450000 19732 16993 73968 1861433 5117939 6979372 5646126 1308748 438321 10878429 12625498 5600000 2019-01-01 -402374 2106671 500728 432369 -402374 2106671 492548 424952 0 0 8180 7417 510609 1043894 78459 98214 510609 1043894 74154 93503 0 0 4305 4711 0 16.02 58.39 15.78 55.18 0 15.18 50.87 15.26 49.40 5.20 38.25 0 160700 The loan matures on May 5, 2022 and has an interest rate of 1%. There are no payments due until November 5, 2020 378000 The note is payable in one installment on April 1, 2021 and bears interest at the one-year LIBOR rate (1% as of June 30, 2020). 150000 8400000 9000000 8397253 Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve month basis. 2021-03-27 0.0475 20000000 90000 0.08 2019-05-01 15000 5004167 4167 1446668 0.15 10000000 1250000 April, 2029 2.13 0.0232 P5Y4M15D 812500 406250 406250 2500000 0.33 2500000 0.33 625000 625000 2.17 0.0192 P31M 58380 0.17 2021-12-31 300000 2.13 0.0232 P5Y 620750 2021-12-31 3000000 2029-04-02 0.15 500000 0.25 2500000 217000 50000 PIE has agreed to purchase for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d) warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up to 11,066,667 shares of Empire common stock at an exercise price of $0.141 per share. PIE is obligated to exercise the $0.20 warrants within 45 days of when 3 month trailing average production from the Empire Texas properties have increased by 20% over the trailing 3 month trailing average production as of July 2020 0.25 0.141 7533333 2000000 0.06 2024-08-07 150000 combined 85% working and revenue interest in the affected wells. Of the assigned interest, 70% will be used to repay the obligations under the term loan agreement. Once the term loan is repaid, PIE will assign a 35% working and revenue interest to Empire and retain a 50% working and revenue interest. 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$.001 Par Value 150,000,000 Shares Authorized, 21,392,277 and 20,367,277 Shares Issued and Outstanding, Respectively Additional Paid-in Capital Accumulated Deficit Total Stockholders' Deficit [Stockholders' Equity Attributable to Parent] Total Liabilities and Stockholders' Deficit [Liabilities and Equity] Other property and equipment, accumulated depreciation Acquisition deposit, net of allowance Stockholders' deficit: Common stock par value Common stock shares authorized Common stock shares issued Common stock shares outstanding CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Revenue: Oil and Gas Sales Net realized and unrealized Gain (Loss) on Derivatives Total Revenue [Revenues] Costs and Expenses: Operating Taxes - Production Depletion, Depreciation & Amortization Impairment of Oil and Natural Gas Properties Accretion of Asset Retirement Obligation General and Administrative Total Cost and Expenses [Operating Expenses] Operating Loss [Operating Income (Loss)] Other Income and (Expense): Gain on Sale of Assets Interest Expense [Interest Expense] Net Loss [Net Income (Loss) Attributable to Parent] Net Loss per Common Share, Basic & Diluted Weighted Average Number of Common Shares Outstanding Basic & Diluted CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED) Statement [Table] Statement [Line Items] Equity Components [Axis] Common Stock [Member] Additional Paid-In Capital [Member] Accumulated Deficit [Member] Balance, shares [Shares, Issued] Balance, amount Net Income Net Loss Shares, Options, Warrants and Conversion Features Issued, shares Shares, Options, Warrants and Conversion Features Issued, amount Shares, Options, Warrants and Conversion Features Issued Balance, shares Balance, amount CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Cash Flows From Operating Activities: Net Loss Adjustments to Reconcile Net Loss to Net Cash Provided by (used in) Operating Activities: Gain on Sales of Assets Value of warrants and options granted Amortization of Warrant Value and Conversion Feature on Convertible Notes Amortization of Loan Issue Costs Depreciation, Depletion and Amortization Impairment of Oil and Natural Gas Properties Accretion of Asset Retirement Obligation Allowance for loss relating to purchase deposit Change in Operating Assets and Liabilities: Accounts Receivable [Increase (Decrease) in Accounts Receivable] Unrealized Gain on Derivative Instruments [Unrealized Gain on Derivative Instruments] Inventory [Increase (Decrease) in Inventories] Prepaids [Increase (Decrease) in Prepaid Expense] Utility and other deposits [Increase (Decrease) in Other Deposits] Accounts Payable [Increase (Decrease) in Accounts Payable] Accrued Expenses [Increase (Decrease) in Accrued Liabilities] Net Cash Provided by (used in) Operating Activities [Net Cash Provided by (Used in) Operating Activities] Cash Flows from Investing Activities: Acquisition of Oil and Natural Gas Properties [Payments to Acquire Oil and Gas Property] Purchase of other fixed assets [Payments for Purchase of Other Assets] Proceeds From Sale of Oil and Natural Gas Properties Deposit for Purchase of Oil and Natural Gas Properties [Deposit for Purchase of Oil and Natural Gas Properties] Net Cash Used in Investing Activities [Net Cash Provided by (Used in) Investing Activities] Cash Flows from Financing Activities: Proceeds from Debt Issued Principal Payments of Debt [Repayments of Long-term Debt] Proceeds from Stock and Warrant Issuance Net Cash Provided by Financing Activities [Net Cash Provided by (Used in) Financing Activities] Net Change in Cash [Cash, Period Increase (Decrease)] Cash - Beginning of Period [Cash] Cash - End of Period Supplemental Cash Flow Information: Cash Paid for Interest Non-cash Investing and Financing Activities: Non-cash Additions to Asset Retirement Obligations Common Stock Issued in Exchange for Outstanding Notes Payable Purchases of oil and natural gas properties in accounts payable Purchases of oil and natural gas properties and deposits in accounts and notes payable, royalty suspense, and contingent payable to seller BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY AND EQUIPMENT 3. PROPERTY AND EQUIPMENT ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES 4. ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES 5. ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES 6. ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES 7. ACQUISITION OF ENERGYQUEST II ASSETS DERIVATIVE FINANCIAL INSTRUMENTS 8. DERIVATIVE FINANCIAL INSTRUMENTS NOTES PAYABLE 9. NOTES PAYABLE EQUITY 10. EQUITY SUBSEQUENT EVENTS 11. SUBSEQUENT EVENTS Principles of consolidation Use of estimates in the preparation of financial statements Interim financial statements Inventory Inventory, Policy [Policy Text Block] Revenue recognition Fair value measurements Schedule of property and equipment Schedule of capitalized costs of oil and natural gas properties Schedule of fair value of assets Schedule of purchase price allocation Schedule of gain loss on derivatives Schedule of net cash receipts from derivatives Schedule of notional amounts of outstanding derivative BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) Plan Name [Axis] Related Party Transactions By Related Party Axis Revolver Loan Agreement [Member] Morrisett [Member] Pritchard [Member] Cash Impairment of oil and natural gas properties Outstanding advances Working capital Other deposits Officers and employees compensation Receivables from contracts Guarantor Obligations, Nature [Axis] Oil And Natural Gas [Member] Proved producing wells Proved undeveloped Lease and well equipment Asset retirement obligation Unproved leasehold costs Gross capitalized costs Less: accumulated depreciation, depletion and impairment Net Capitalized costs Other property and equipment, at cost Less: accumulated depreciation Oher property and equipment, net Related Party Transaction [Axis] Consultant [Member] Montana [Member] Proceeds from sale of lease interest Sale of lease interest Payment for lease interests Ovintiv [Member] Deposits Return of deposits Business acquisation purchase price Business acquisation effective date Business acquisation closing date Liability Class [Axis] Asset Class [Axis] Fair Value of Liability Assumed [Member] Fair Value of Assets Acquired [Member] Accounts payable, net Note payable - current Royalty suspense Asset retirement obligations Total liabilities assumed Total consideration Oil and natural gas properties Inventory of oil in tanks Deposits [Deposits Assets, Current] Equipment and gathering lines Total Assets Acquired Award Date [Axis] December 2022 [Member] Purchase and Sale Agreement [Member] Accounts payable Average price per barrel Description of asset acquired Business Acquisition Axis Producing Properties [Member] Warhorse Acquisition [Member] Lease and well equipment [Member] Purchase price Asset retirement obligations [Asset Retirement Obligations, Noncurrent] Sheriff fees ACQUISITION OF ENERGYQUEST II ASSETS (Details) Energy Quest [Member] Fair Value of liabilities Assumed Accounts payable - trade Asset retirement obligations Total liabilities assumed Total consideration paid Fair Value of Assets Acquired Accounts Receivable [Accounts Receivable, after Allowance for Credit Loss] Inventory of oil in tanks [Inventory of oil in tanks] Oil properties Total Assets Acquired [Assets, Fair Value Disclosure] Business acquisation purchase price Business acquisation effective date Accounts payable - trade Total consideration paid DERIVATIVE FINANCIAL INSTRUMENTS (Details) Credit Derivatives By Contract Type Axis Oil derivatives [Member] Natural gas derivatives [Member] Gain (loss) on derivatives Net cash receipts from (payments on) derivatives: Award Type Axis Subsequent Event Type Axis Oil Swaps [Member] Second quarter [Member] Third quarter [Member] Fourth quarter [Member] First quarter [Member] Subsequent Event [Member] Volume (Mbbl) Price per Bbl NOTES PAYABLE (Details Narrative) Range Axis Longterm Debt Type Axis Pardus Oil & Gas Operating, LP [Member] May 5, 2020 [Member] Pardus Oil & Gas, LLC [Member] April 1, 2020 [Member] Revolver Loan Agreement [Member] Maximum [Member] Unsecured Note [Member] Investors [Member] February 2019 [Member] Morrisett [Member] Promissory note Description of notes payable Reduction in commitment amount per quarter Revolver commitment amount Outstanding loan Interest expense description Maturity date Interest rate Notes payable Derivative Instrument [Axis] Financial Instrument [Axis] Stock Option Plan [Member] April 3, 2019 [Member] Pritchard [Member] Michael R. Morrisett [Member] April 2020 [Member] April 2021 [Member] Warrant [Member] During May 2019 [Member] Anthony Kamin [Member] Exercise price one [Member] Exercise price two [Member] Mr. Anthony Kamin [Member] Options outstanding excluded from calculation of earnings per share Shares, options, warrants and conversion features issued, Shares Warrants exercise price Shares issuable Stock options vested Options expiry date Expected volatility rate Risk free interest rate Expected useful life Additional paid in capital Fair of the remaining unvested options Compensation expense Stock options granted Share of Common Stock Promissory note due date Warrants issued to purchase common shares Extended maturity date Proceed from share conversion Shares, options, warrants and conversion features issued, Amount Security Purchase Agreement [Member] Petroleum & Independent Exploration, LLC [Member] Joint Development Agreement [Member] August 1, 2020 [Member] Subsequent Event [Member] Description of security purchase agreement Warrant exercise price Per share price Shares Acquired, shares Loan from related party Rate of interest Maturity date [Debt Instrument, Maturity Date] Proceeds from loan Description of working and revenue interest Amount of accumulated depreciation of long-lived, physical assets used to produce goods and services and not intended for resale, classified as other. 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Jun. 30, 2020
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Entity Registrant Name EMPIRE PETROLEUM CORP
Entity Central Index Key 0000887396
Document Type 10-Q
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Current Fiscal Year End Date --12-31
Entity Small Business true
Entity Shell Company false
Entity Emerging Growth Company false
Entity Current Reporting Status Yes
Document Period End Date Jun. 30, 2020
Entity Filer Category Non-accelerated Filer
Document Fiscal Period Focus Q2
Document Fiscal Year Focus 2020
Entity Common Stock Shares Outstanding 21,392,277
Document Quarterly Report true
Document Transition Report false
Entity Interactive Data Current Yes
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CONSOLIDATED BALANCE SHEETS - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Current Assets:    
Cash $ 285,813 $ 0
Accounts Receivable 928,152 982,814
Unrealized Gain on Derivative Instruments 850,674 0
Inventory 567,478 476,305
Prepaids 83,247 129,541
Total Current Assets 2,715,364 1,588,660
Property and equipment:    
Oil and Natural Gas Properties, Successful Efforts 24,702,866 12,660,457
Less: Accumulated Depreciation, Depletion and Impairment (4,918,808) (3,365,340)
Oil and natural gas properties, successful efforts, net 19,784,058 9,295,117
Other Property and Equipment, net of $3,399 and $1,830 Accumulated Depreciation, respectively 11,056 12,626
Total Property and Equipment, net 19,795,114 9,307,743
Utility and other deposits 487,811 118,177
Acquisition deposit, net of allowance of $725,000 and $-0-, respectively (see Note 4) 125,000 0
Total Assets 23,123,289 11,014,580
Current Liabilities:    
Accounts Payable 1,040,036 1,025,585
Accrued Expenses 2,356,024 1,103,916
Unrealized Loss on Derivative Instruments 0 11,861
Current Portion of Long-term Notes Payable 8,731,494 96,704
Total Current Liabilities 12,127,554 2,238,066
Long Term Portion of Unrealized Loss on Derivative Instruments 11,529 211,771
Long-Term Notes Payable 160,700 7,715,118
Contingent Payments (see Note 5) 985,820 0
Asset Retirement Obligations 15,652,761 5,788,280
Total Liabilities 28,938,364 15,953,235
Stockholders' Deficit:    
Common Stock - $.001 Par Value 150,000,000 Shares Authorized, 21,392,277 and 20,367,277 Shares Issued and Outstanding, Respectively 21,392 20,367
Additional Paid-in Capital 19,331,651 18,823,926
Accumulated Deficit (25,168,118) (23,782,948)
Total Stockholders' Deficit (5,815,075) (4,938,655)
Total Liabilities and Stockholders' Deficit $ 23,123,289 $ 11,014,580
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
CONSOLIDATED BALANCE SHEETS    
Other property and equipment, accumulated depreciation $ 3,399 $ 1,830
Acquisition deposit, net of allowance $ 725,000 $ 0
Stockholders' deficit:    
Common stock par value $ 0.001 $ 0.001
Common stock shares authorized 150,000,000 150,000,000
Common stock shares issued 21,392,277 20,367,277
Common stock shares outstanding 21,392,277 20,367,277
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue:        
Oil and Gas Sales $ 994,529 $ 1,996,758 $ 2,308,929 $ 2,320,968
Net realized and unrealized Gain (Loss) on Derivatives (402,374) 500,728 2,106,671 432,369
Total Revenue 592,155 2,497,486 4,415,600 2,753,337
Costs and Expenses:        
Operating 723,535 1,241,384 2,189,490 1,393,871
Taxes - Production 60,569 129,824 144,528 149,473
Depletion, Depreciation & Amortization 486,568 862,120 754,585 880,206
Impairment of Oil and Natural Gas Properties 0 0 800,452 0
Accretion of Asset Retirement Obligation 257,043 63,228 355,997 69,827
General and Administrative 1,914,406 2,044,022 2,443,390 2,656,611
Total Cost and Expenses 3,442,121 4,340,578 6,688,442 5,149,988
Operating Loss (2,849,966) (1,843,092) (2,272,842) (2,396,651)
Other Income and (Expense):        
Gain on Sale of Assets 0 0 1,143,760 0
Interest Expense (123,219) (162,968) (256,088) (196,911)
Net Loss $ (2,973,185) $ (2,006,060) $ (1,385,170) $ (2,593,562)
Net Loss per Common Share, Basic & Diluted $ (0.14) $ (0.10) $ (0.07) $ (0.14)
Weighted Average Number of Common Shares Outstanding Basic & Diluted 21,392,277 19,358,110 21,222,387 18,587,304
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED) - USD ($)
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Balance, shares at Dec. 31, 2018   17,345,609    
Balance, amount at Dec. 31, 2018 $ (150,183) $ 17,345 $ 16,960,818 $ (17,128,346)
Net Loss (587,502) $ 0 0 (587,502)
Shares, Options, Warrants and Conversion Features Issued, shares   1,446,668    
Shares, Options, Warrants and Conversion Features Issued, amount 217,000 $ 1,447 215,553 0
Balance, shares at Mar. 31, 2019   18,792,277    
Balance, amount at Mar. 31, 2019 (520,685) $ 18,792 17,176,371 (17,715,848)
Balance, shares at Dec. 31, 2018   17,345,609    
Balance, amount at Dec. 31, 2018 (150,183) $ 17,345 16,960,818 (17,128,346)
Net Loss (2,593,562)      
Balance, shares at Jun. 30, 2019   19,867,277    
Balance, amount at Jun. 30, 2019 (927,615) $ 19,867 18,774,426 (19,721,908)
Balance, shares at Mar. 31, 2019   18,792,277    
Balance, amount at Mar. 31, 2019 (520,685) $ 18,792 17,176,371 (17,715,848)
Net Loss (2,006,060) $ 0 0 (2,006,060)
Shares, Options, Warrants and Conversion Features Issued, shares   1,075,000    
Shares, Options, Warrants and Conversion Features Issued, amount 1,599,130 $ 1,075 1,598,055 0
Balance, shares at Jun. 30, 2019   19,867,277    
Balance, amount at Jun. 30, 2019 (927,615) $ 19,867 18,774,426 (19,721,908)
Balance, shares at Dec. 31, 2019   20,367,277    
Balance, amount at Dec. 31, 2019 (4,938,655) $ 20,367 18,823,926 (23,782,948)
Net Income 1,588,015 $ 0 0 1,588,015
Shares, Options, Warrants and Conversion Features Issued, shares   1,025,000    
Shares, Options, Warrants and Conversion Features Issued, amount 102,500 $ 1,025 101,475 0
Balance, shares at Mar. 31, 2020   21,392,277    
Balance, amount at Mar. 31, 2020 (3,248,140) $ 21,392 18,925,401 (22,194,933)
Balance, shares at Dec. 31, 2019   20,367,277    
Balance, amount at Dec. 31, 2019 (4,938,655) $ 20,367 18,823,926 (23,782,948)
Net Loss (1,385,170)      
Balance, shares at Jun. 30, 2020   21,392,277    
Balance, amount at Jun. 30, 2020 (5,815,075) $ 21,392 19,331,651 (25,168,118)
Balance, shares at Mar. 31, 2020   21,392,277    
Balance, amount at Mar. 31, 2020 (3,248,140) $ 21,392 18,925,401 (22,194,933)
Net Loss (2,973,185) 0 0 (2,973,185)
Shares, Options, Warrants and Conversion Features Issued 406,250 $ 0 406,250 0
Balance, shares at Jun. 30, 2020   21,392,277    
Balance, amount at Jun. 30, 2020 $ (5,815,075) $ 21,392 $ 19,331,651 $ (25,168,118)
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash Flows From Operating Activities:    
Net Loss $ (1,385,170) $ (2,593,562)
Adjustments to Reconcile Net Loss to Net Cash Provided by (used in) Operating Activities:    
Gain on Sales of Assets $ (1,143,760) $ 0
Value of warrants and options granted 406,250 1,491,630
Amortization of Warrant Value and Conversion Feature on Convertible Notes $ 0 $ 2,998
Amortization of Loan Issue Costs 29,172 14,486
Depreciation, Depletion and Amortization 754,585 880,206
Impairment of Oil and Natural Gas Properties 800,452 0
Accretion of Asset Retirement Obligation 355,997 69,827
Allowance for loss relating to purchase deposit 725,000 0
Change in Operating Assets and Liabilities:    
Accounts Receivable 54,662 (662,165)
Unrealized Gain on Derivative Instruments (1,062,775) (334,155)
Inventory 56,124 (33,703)
Prepaids 46,294 (56,819)
Utility and other deposits 8,366 0
Accounts Payable (6,005) 121,794
Accrued Expenses 66,521 1,154,074
Net Cash Provided by (used in) Operating Activities (294,287) 54,611
Cash Flows from Investing Activities:    
Acquisition of Oil and Natural Gas Properties (506,000) (5,706,531)
Purchase of other fixed assets 0 (14,455)
Proceeds From Sale of Oil and Natural Gas Properties 1,160,400 0
Deposit for Purchase of Oil and Natural Gas Properties (850,000) 0
Net Cash Used in Investing Activities (195,600) (5,720,986)
Cash Flows from Financing Activities:    
Proceeds from Debt Issued 925,700 6,479,744
Principal Payments of Debt (150,000) (1,065,000)
Proceeds from Stock and Warrant Issuance 0 167,000
Net Cash Provided by Financing Activities 775,700 5,581,744
Net Change in Cash 285,813 (84,631)
Cash - Beginning of Period 0 84,631
Cash - End of Period 285,813 0
Supplemental Cash Flow Information:    
Cash Paid for Interest 306,333 160,088
Non-cash Investing and Financing Activities:    
Non-cash Additions to Asset Retirement Obligations 9,508,484 3,400,770
Common Stock Issued in Exchange for Outstanding Notes Payable 102,500  
Purchases of oil and natural gas properties in accounts payable 0 291,420
Purchases of oil and natural gas properties and deposits in accounts and notes payable, royalty suspense, and contingent payable to seller $ 2,569,863 $ 0
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.20.2
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2020
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES  
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements of Empire Petroleum Corporation ("Empire" or the "Company") have been prepared in accordance with United States generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, the results of operations, and the cash flows for the interim period are included. All adjustments are of a normal, recurring nature. Operating results for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

The information contained in this Form 10-Q should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2019 which are contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 30, 2020.

 

The Company has incurred significant losses in recent years. The continuation of the Company as a going concern is dependent upon the ability of the Company to attain future profitable operations and/or additional debt or equity financing until profitable operations are achieved. These financial statements have been prepared on the basis of United States generally accepted accounting principles applicable to a company with continuing operations, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. Management believes the going concern assumption to be appropriate for these financial statements. If the going concern assumption were not appropriate for these financial statements, then adjustments might be necessary to adjust the carrying value of assets and liabilities and reported expenses.

 

The Company’s impairment assessment of proved and unproved mineral properties is based on several factors including oil and gas spot market prices and estimated futures prices that existed at June 30, 2020. In2020, crude oil prices in both the spot market and futures market experienced significant volatility. For the six months ended June 30, 2020 the Company recorded an impairment expense of $800,452 as a result of the decline in oil prices (See Note 3). Further, the effect of lower crude oil prices on the Company’s future financial position or results of operations is not currently determinable due to broader economic and industry uncertainties, including the impact to the operators and other working interest owners of the properties in which the Company owns mineral interests.

 

In the event crude oil or natural gas prices remain low, there is the risk that, among other things:

 

· the Company’s revenues, cash flows and profitability may decline substantially, which could also indirectly impact expected production by reducing the amount of funds available to acquire future mineral interests;

 

· reserves relating to the Company’s proved properties may become uneconomic to produce resulting in impairment of proved properties; and

 

· operators and other working interest owners are unable to execute their drilling and exploration programs resulting in lower production or inability to prove reserves on unproved properties

 

The occurrence of certain of these events may have a material adverse effect on the Company's business, results of operations and financial condition.

 

In early March 2020, there was a global outbreak of COVID-19 that continued into the second quarter and has resulted in changes in global supply and demand of certain mineral and energy products. These changes, including the magnitude and length of the economic downturn and any potential resulting direct and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company’s acquisition and project development activities, and cash flows and liquidity.

 

Reclassification of prior year presentation. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Balance Sheet for the year ended December 31, 2019 to reclassify certain utility and other deposits in the amount of $118,177 which had previously been included in prepaids.

 

The continuation of the Company is dependent upon the ability of the Company to raise capital and attain future profitable operations. The ultimate recoverability of the Company's investment in oil and natural gas interests is dependent upon the existence and discovery of economically recoverable oil and natural gas reserves, the ability of the Company to obtain necessary financing to further develop the interests, and the ability of the Company to attain future profitable production.

 

As of June 30, 2020, the Company had $285,813 of cash and working capital deficit of $9,412,190, which includes the net balance of the Senior Revolver Loan Agreement of $8,397,253 which matures March 27, 2021. The Company has proved reserves which have been acquired within the last two years. The Company plans to continue to look for oil and natural gas investments and will use a combination of debt and equity financing to fund the acquisitions. The Company expects to also incur costs related to evaluating and acquiring oil and natural gas acquisitions for the foreseeable future. It is expected that management will attempt to raise additional capital for future investment and working capital opportunities.

 

Compensation of Officers and Employees

 

As of June 30, 2020, the Company had three employees. No independent Board members received compensation from the Company in the first six months of 2020 or 2019. For the six months ended June 30, 2020, the Company paid Mr. Morrisett and Mr. Pritchard $116,000 each for services rendered. For the six months ended June 30, 2019, the Company paid Mr. Morrisett $127,450 and Mr. Pritchard $131,450 for services rendered excluding the value of options. In addition, as of June 30, 2020 Mr. Pritchard has outstanding advances of $26,017.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2020
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation. The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"), and Empire Texas, LLC (“Empire Texas”). All material intercompany balances and transactions have been eliminated.

 

Use of estimates in the preparation of financial statements. Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs. Other significant estimates include, but are not limited to, asset retirement obligations, fair value of assets purchased in acquisitions, and taxes.

 

Interim financial statements. The accompanying consolidated financial statements of the Company have not been audited by the Company's independent registered public accounting firm. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

 

Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

 

Inventory.  Inventory consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe which has not yet been put into production.

 

Revenue recognition. The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated on the Company's consolidated statements of operations. The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company's performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At June 30, 2020, the Company had receivables related to contracts with customers of approximately $590,000.

 

Fair value measurements. The Financial Accounting Standards Board ("FASB") fair value measurement standards define fair value, establish a consistent framework for measuring fair value and establish a fair value hierarchy based on the observability of inputs used to measure fair value.

 

Convertible debt - The carrying value of the convertible debt approximate fair value as of December 31, 2019. As of June 30, 2020 all of the convertible debt had been converted to shares of the Company’s common stock. Management's estimates are based on the assessment of qualitative factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB ASC 820.

 

Oil and natural gas properties - The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved and unproved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. For significant purchases, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The inputs used to value oil and natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other- The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying value due to their short-term nature.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.20.2
PROPERTY AND EQUIPMENT
6 Months Ended
Jun. 30, 2020
PROPERTY AND EQUIPMENT  
3. PROPERTY AND EQUIPMENT

In March 2019, the Company, through its subsidiary, Empire North Dakota, LLC, purchased oil and natural gas properties in Montana and North Dakota (See Note 7).

 

On January 27, 2020, the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Bill of Sale and Assignment to purchase lease interests in approximately 4,936 acres in Montana for $500,000.

 

On February 10, 2020, the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold overriding royalty interests for leases it owned in Montana for $325,000 to a consultant of the Company. As of June 30, 2020 $200,000 of the sales price had been received with the balance pending completion of title work.

 

On February 17, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, sold all of its interest in leases of approximately 337 acres in Montana for $1,010,400.

 

On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, purchased oil and natural gas properties in Texas (see Note 5).

 

During the six months ended June 30, 2020, NYMEX strip prices experienced significant volatility, resulting in a significant decrease in value of the Company’s economically recoverable proved oil and natural gas reserves. As such, the carrying amount of the Company’s proved oil and natural gas properties exceeded the expected undiscounted future net cash flows for certain leases, resulting in impairment charges against earnings of $800,452. These impairment charges are included in impairments of long-lived assets on the consolidated statement of operations for the six months ended June 30, 2020. The Company did not recognize an impairment of proved oil and natural gas properties during the six months ended June 30, 2019.

 

The aggregate capitalized costs of oil and natural gas properties as of June 30, 2020, are as follows: 

Proved producing wells   $ 5,284,041  
Proved undeveloped     2,232,458  
Lease, well and gathering  equipment     1,705,092  
Asset retirement obligation     14,988,534  
Unproved leasehold costs     492,741  
Gross capitalized costs     24,702,866  
Less: accumulated depreciation, depletion and impairment     (4,918,808 )
    $ 19,784,058  

 

Other property and equipment consists of office furniture and equipment.

 

Oher property and equipment, at cost   $ 14,456  
Less: accumulated depreciation     (3,400 )
Oher property and equipment, net   $ 11,056  
XML 21 R10.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES
6 Months Ended
Jun. 30, 2020
ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES  
4. ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES

On March 3, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Ovintiv USA, Inc. and several related companies to purchase certain oil and natural gas properties in Montana and North Dakota comprising 26,600 net acres with 94 active wells. The purchase price is $8,500,000, subject to adjustments with an effective date of January 1, 2020 and a closing date of April 30, 2020.

 

The Company has made an $850,000 deposit relating to the purchase which is recorded as a deposit on its balance sheet. Due to the COVID pandemic, and governmental state of emergency orders related thereto, the Company was unable to meet with and obtain financing to complete the purchase from its lenders. As of June 30, 2020 the Agreement has been terminated. The Company is currently in communication with the Seller for return of the deposit. The Company may not be successful in obtaining return of the entire deposit and has recorded an allowance of $725,000 based on its assessment of the negotiations.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES
6 Months Ended
Jun. 30, 2020
ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES  
5. ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES

On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Pardus Oil & Gas, LLC and Pardus Oil & Gas Operating GP, LLC (collectively “the Seller”) to purchase certain oil and natural gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines and related facilities and equipment, and all general and limited partner interest in Pardus Oil & Gas Operating, LP. The purchase price included the assumption of certain obligations and a contingent payment not to exceed $2,000,000 reduced by certain revenue suspense amounts. The contingent payment is based on monthly oil production in excess of a specified level from the purchased properties and an average monthly realized oil price of $40 or more per barrel of oil through December 31, 2022. The transaction closed on April 7, 2020.

 

The following table sets forth the Company's purchase price allocation:

 

 

       
Fair Value of Assets Acquired      
Oil and natural gas properties   $ 1,935,366  
Inventory of oil in tanks     147,297  
Deposits     378,000  
Equipment and gathering lines     109,200  
Asset retirement obligation asset     9,508,484  
         
Total Assets Acquired   $ 12,078,347  
         
Fair Value of Liabilities Assumed        
Accounts payable, net   $ 20,456  
Note payable – current     378,000  
Royalty suspense     1,185,587  
Asset retirement obligations     9,508,484  
         
Total liabilities assumed   $ 11,092,527  
         
Total consideration   $ 985,820  

 

The fair values of assets acquired and liabilities assumed were based on the following key inputs:

 

Oil and natural gas properties

 

The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations totaled $9,508,484 and is included with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The total consideration consists of a contingent payment to the seller which is due based on monthly production of oil and natural gas through December 31, 2022 and a monthly average price of $40 or higher per barrel.

 

The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other

 

The fair values determined for accounts payable - trade were equivalent to the carrying value due to their short-term nature.

 

Accounts payable - trade includes $20,456 of liabilities primarily related to well activity prior to close.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES
6 Months Ended
Jun. 30, 2020
ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES  
6. ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES

On June 10, 2019, the Company received a process verbal and related sheriff's deed dated as of May 29, 2019 (the "Sheriff's Deed") pertaining to two wells in St. Landry Parish purchased from Business First Bancshares, Inc. d/b/a Business First Bank ("Business First").

 

Pursuant to the Sheriff's Deed, the Company acquired certain oil and natural gas properties located in St. Landry Parish, Louisiana, including operated working interest in two producing wells. The Company purchased Business First's position as the superior lienholder and seizing creditor of such oil and natural gas properties, which were owned by Warhorse Oil & Gas, LLC, for $450,000 plus $16,993 sheriff fees. The payment was paid from loan proceeds under the loan agreement with CrossFirst Bank (see Note 9).

 

The Company treated the acquisition as an asset purchase. An amount equal to $73,968 was allocated to lease and well equipment and $378,110 was allocated to producing properties. An asset retirement obligation of $19,732 was recorded in conjunction with the purchase.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF ENERGYQUEST II ASSETS
6 Months Ended
Jun. 30, 2020
ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES  
7. ACQUISITION OF ENERGYQUEST II ASSETS

On March 28, 2019, the Company purchased oil producing properties from EnergyQuest II, LLC ("EnergyQuest") for a purchase price of $5,600,000. The effective date of the transaction was January 1, 2019. After certain adjustments related to the effective date, the total proceeds paid to EnergyQuest were $5,646,126.  Such proceeds were paid from borrowing on notes payable and sales of unregistered securities of the Company.

 

The following table sets forth the Company's purchase price allocation:

 

 

Fair Value of Assets Acquired

 

 

 

Accounts receivable

 

$

1,308,748

 

Inventory of oil in tanks

 

 

438,321

 

Oil properties

 

 

10,878,429

 

 

 

 

 

 

Total Assets Acquired

 

$

12,625,498

 

 

 

 

 

 

Fair Value of Liabilities Assumed

 

 

 

 

Accounts payable – trade

 

$

1,861,433

 

Asset retirement obligations

 

 

5,117,939

 

 

 

 

 

 

Total liabilities assumed

 

$

6,979,372

 

 

 

 

 

 

Total consideration paid

 

$

5,646,126

 

 

 

The fair values of assets acquired and liabilities assumed were based on the following key inputs:

 

Oil and natural gas properties

 

The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations totaled $5,117,939 and is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other

 

The fair values determined for accounts receivable and accounts payable - trade were equivalent to the carrying value due to their short-term nature.

 

Accounts payable - trade includes $1,861,433 of liabilities primarily related to well activity prior to close.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS
6 Months Ended
Jun. 30, 2020
DERIVATIVE FINANCIAL INSTRUMENTS  
8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to manage its exposure to commodity price fluctuations. Commodity derivative instruments are used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells. The Company’s derivative financial instruments consist of oil and natural gas swaps.

 

The Company does not enter into derivative financial instruments for speculative or trading purposes.

 

The Company does not designate its derivative instruments to qualify for hedge accounting. Accordingly, the Company reflects changes in the fair value of its derivative instruments in its consolidated statements of operations as they occur. Unrealized gains and losses related to the swap contracts are recognized and recorded as an asset or liability on the Company’s balance sheet. 

 

The following table summarizes the net realized and unrealized amounts reported in earnings related to the commodity derivative instruments for the three and six months ended June 30, 2020 and 2019:

 

    Three months ended June 30,     Six months ended June 30,  
    2020     2019     2020     2019  
Gain (loss) on derivatives:                                
Oil derivatives   $ (402,374 )   $ 492,548     $ 2,106,671     $ 424,952  
Natural gas derivatives           8,180             7,417  
Total   $ (402,374 )   $ 500,728     $ 2,106,671     $ 432,369  
                                 

 

The following represents the Company’s net cash receipts from derivatives for the three and six months ended June 30, 2020 and 2019:

 

    Three months ended June 30,     Nine months ended June 30,  
    2020     2019     2020     2019  
Net cash received from payments on derivatives                                
Oil derivatives   $ 510,609     $ 74,154     $ 1,043,894     $ 93,503  
Natural gas derivatives             4,305             4,711  
Total   $ 510,609     $ 78,459     $ 1,043,894     $ 98,214  

  

The following table sets forth the Company’s outstanding derivative contracts at June 30, 2020. The Company has no outstanding natural gas derivatives. All of the Company’s derivatives are expected to settle by October 2021:

 

    1st Quarter     2nd Quarter     3rd Quarter     4th Quarter  
2020                                
Oil Swaps:                                
Volume (MBbl)                 16.02       15.78  
Price per Bbl               $ 58.39     $ 55.18  
                                 
                                 
2021                                
Oil Swaps:                                
Volume (MBbl)     15.26       15.18       5.20        
Price per Bbl   $ 49.40     $ 50.87     $ 38.25        
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.20.2
NOTES PAYABLE
6 Months Ended
Jun. 30, 2020
NOTES PAYABLE  
9. NOTES PAYABLE

In February 2019, the Company entered into five unsecured promissory note agreements with accredited investors totaling $90,000. The notes were due May 1, 2019, and accrued interest at 8%. One of the notes, in the amount of $15,000 was issued to Michael R. Morrisett, the Company's President. These notes and the related interest were paid in May 2019.

 

On September 20, 2018 the Company entered into a Senior Revolver Loan Agreement (“the Agreement”) with CrossFirst Bank (“CrossFirst”). The Agreement was amended March 27, 2019 (the “Amended Agreement”). The Amended Agreement commitment amount is $9,000,000 which is reduced by $150,000 per calendar quarter ($8,400,000 at June 30, 2020) and the maximum amount that can be advanced under the Agreement is $20,000,000 and includes interest at Wall Street Journal Prime plus 150 basis points (4.75% as of June 30, 2020). The Agreement matures on March 27, 2021. Collateral for the loan is a lien on all of the assets of the Company’s wholly owned subsidiaries, Empire Louisiana and Empire North Dakota, and a first priority mortgage lien, pledge of and security interest in not less than 80% of Empire Louisiana’s and Empire North Dakota’s producing oil, gas and other leasehold and mineral interests. The Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve month basis. The Company is not in compliance with the funded debt to EBITDAX covenant of the Agreement at June 30, 2020. As of June 30, 2020, the Company has an outstanding loan balance of $8,397,253 under the Agreement.

 

In January 2020 three of the Senior Unsecured Promissory Note investors exercised the conversion feature and converted their $102,500 notes for 1,025,000 shares of the Company's common stock. All of the Senior Unsecured Promissory Notes have been converted to common stock of the Company as of March 31, 2020.

 

On April 1, 2020, in conjunction with the purchase of assets from Pardus Oil & Gas, LLC (see Note 5), the Company entered into a unsecured promissory note agreement with the seller in the amount of $378,000. The note is payable in one installment on April 1, 2021 and bears interest at the one-year LIBOR rate (1% as of June 30, 2020).

 

On May 5, 2020, the Company, through its wholly owned subsidiary, Pardus Oil & Gas Operating, LP, received an SBA Payroll Protection Plan (“PPP”) loan for $160,700. The loan matures on May 5, 2022 and has an interest rate of 1%. There are no payments due until November 5, 2020 at which time the payment amount will be determined based on the portion of the loan which has not been forgiven under criteria established by the SBA, using an eighteen-month amortization. The Company expects that the majority of the loan amount will be forgiven based on currently published guidelines of the United States Small Business Administration.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.20.2
EQUITY
6 Months Ended
Jun. 30, 2020
EQUITY  
10. EQUITY

Diluted Earnings per Share ("EPS") gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on losses. As a result, if there is a loss from continuing operations, Diluted EPS is computed in the same manner as Basic EPS. At March 31, 2020 and 2019, the Company had 5,004,167 and 4,167 respectively, options outstanding that were not included in the calculation of earnings per share for the periods then ended. Such financial instruments may become dilutive and would then need to be included in future calculations of Diluted EPS. At June 30, 2020 and 2019, the outstanding options were considered anti-dilutive since the strike prices were above the market price and since the Company has incurred losses year to date.

 

In March 2019, 1,446,668 outstanding $0.15 warrants were converted to shares of common stock of the Company. Proceeds received from the conversion was $217,000 including $50,000 of notes payable conversion by Mr. Kamin, a board member.

 

During May 2019, the Company issued warrants to purchase 300,000 shares of its common stock for $0.17 per share which expire on December 31, 2021 to a former employee for business assistance provided. The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 217%, risk free interest rate of 1.92% and an expected useful life of 31 months. The fair value of the warrants of $58,380 was recorded as compensation expense and allocated to Paid in Capital.

 

 

 

On April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the "Stock Option Plan"). The total number of shares of common stock that may be issued pursuant to stock options under the Stock Option Plan is 10,000,000. Further, on April 3, 2019 the Company granted Mr. Pritchard and Mr. Morrissett each, options to purchase 2,500,000 shares of common stock of the Company at an exercise price of $0.33 per share. The options vest in three installments with 1,250,000 vesting immediately and 625,000 vesting each in April 2020 and April 2021. All of the options expire in April, 2029. The value allocated to the vested options was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5.375 years. The fair value of the vested options of $812,500 was recorded as compensation expense and allocated to Paid in Capital in 2019. In 2020, the fair value of the options which vested in April 2020 of $406,250 was recorded as compensation expense and allocated to Paid in Capital. The fair of the remaining unvested options is $406,250 as of June 30, 2020.

 

On April 3, 2019 the Board of Directors of the Company amended certain warrant certificates which had been issued to Mr. Kamin covering 3,000,000 warrants to purchase common stock of the Company. The original warrants expired on December 31, 2021 and had exercise prices of $0.15 and $0.25 for 500,000 and 2,500,000 shares, respectively. The warrants were extended to expire on April 2, 2029. The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5 years. The fair value of the warrants of $620,750 was recorded as compensation expense and allocated to Paid in Capital.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.20.2
SUBSEQUENT EVENTS
6 Months Ended
Jun. 30, 2020
SUBSEQUENT EVENTS  
11. SUBSEQUENT EVENTS

On August 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a joint development agreement (the “Agreement”) with Petroleum & Independent Exploration, LLC and related entities (“PIE”) dated August 1, 2020. Under the terms of the Agreement, PIE will perform recompletion and workover on specified wells owned by Empire. To fund the work, PIE entered into a term loan agreement with Empire dated August 1, 2020, whereby PIE will loan up to $2,000,000, at an interest rate of 6% per annum, maturing August 7, 2024 unless terminated earlier by PIE. On August 7, 2020, $150,000 was advanced to Empire from the loan. As part of the Agreement, Empire will assign to PIE a combined 85% working and revenue interest in the affected wells. Of the assigned interest, 70% will be used to repay the obligations under the term loan agreement. Once the term loan is repaid, PIE will assign a 35% working and revenue interest to Empire and retain a 50% working and revenue interest. In addition, PIE and Empire entered into a Securities Purchase Agreement (“Securities Agreement”) whereby PIE has agreed to purchase for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d) warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up to 11,066,667 shares of Empire common stock at an exercise price of $0.141 per share. PIE is obligated to exercise the $0.20 warrants within 45 days of when 3 month trailing average production from the Empire Texas properties have increased by 20% over the trailing 3 month trailing average production as of July 2020. PIE can only exercise the $0.25 warrants once all existing non-PIE outstanding warrants to purchase Empire common stock have been exercised or lapsed. For the $0.141 warrants, PIE may initially acquire 7,533,333 shares of Empire common stock, however the amount may be increased if any existing non-PIE warrants are exercised prior to December 31, 2020.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Jun. 30, 2020
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
Principles of consolidation

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"), and Empire Texas, LLC (“Empire Texas”). All material intercompany balances and transactions have been eliminated.

Use of estimates in the preparation of financial statements

Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs. Other significant estimates include, but are not limited to, asset retirement obligations, fair value of assets purchased in acquisitions, and taxes.

Interim financial statements

The accompanying consolidated financial statements of the Company have not been audited by the Company's independent registered public accounting firm. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

 

Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Inventory

Inventory consists of oil in tanks which has not been delivered and is valued at the contract price to the buyer and pipe which has not yet been put into production.

Revenue recognition

The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated on the Company's consolidated statements of operations. The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company's performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At June 30, 2020, the Company had receivables related to contracts with customers of approximately $590,000.

Fair value measurements

The Financial Accounting Standards Board ("FASB") fair value measurement standards define fair value, establish a consistent framework for measuring fair value and establish a fair value hierarchy based on the observability of inputs used to measure fair value.

 

Convertible debt - The carrying value of the convertible debt approximate fair value as of December 31, 2019. As of June 30, 2020 all of the convertible debt had been converted to shares of the Company’s common stock. Management's estimates are based on the assessment of qualitative factors that are considered Level 3 measurements in the fair value hierarchy as required by FASB ASC 820.

 

Oil and natural gas properties - The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved and unproved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange ("NYMEX") strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. For significant purchases, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

The fair value of asset retirement obligations is included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

 

The inputs used to value oil and natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

Financial instruments and other- The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying value due to their short-term nature.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.20.2
PROPERTY AND EQUIPMENT (Tables)
6 Months Ended
Jun. 30, 2020
PROPERTY AND EQUIPMENT  
Schedule of property and equipment
Oher property and equipment, at cost   $ 14,456  
Less: accumulated depreciation     (3,400 )
Oher property and equipment, net   $ 11,056  
Schedule of capitalized costs of oil and natural gas properties
Proved producing wells   $ 5,284,041  
Proved undeveloped     2,232,458  
Lease, well and gathering  equipment     1,705,092  
Asset retirement obligation     14,988,534  
Unproved leasehold costs     492,741  
Gross capitalized costs     24,702,866  
Less: accumulated depreciation, depletion and impairment     (4,918,808 )
    $ 19,784,058  
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES (Tables)
6 Months Ended
Jun. 30, 2020
PROPERTY AND EQUIPMENT  
Schedule of fair value of assets

Fair Value of Assets Acquired

 

 

 

Accounts receivable

 

$

1,308,748

 

Inventory of oil in tanks

 

 

438,321

 

Oil properties

 

 

10,878,429

 

 

 

 

 

 

Total Assets Acquired

 

$

12,625,498

 

 

 

 

 

 

Fair Value of Liabilities Assumed

 

 

 

 

Accounts payable – trade

 

$

1,861,433

 

Asset retirement obligations

 

 

5,117,939

 

 

 

 

 

 

Total liabilities assumed

 

$

6,979,372

 

 

 

 

 

 

Total consideration paid

 

$

5,646,126

 

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF ENERGYQUEST II ASSETS (Tables)
6 Months Ended
Jun. 30, 2020
ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES  
Schedule of purchase price allocation
       
Fair Value of Assets Acquired      
Accounts receivable   $ 1,308,748  
Inventory of oil in tanks     438,321  
Oil properties     10,878,429  
         
Total Assets Acquired   $ 12,625,498  
         
Fair Value of Liabilities Assumed        
Accounts payable – trade   $ 1,861,433  
Asset retirement obligations     5,117,939  
         
Total liabilities assumed   $ 6,979,372  
         
Total consideration paid   $ 5,646,126  
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS (Tables)
6 Months Ended
Jun. 30, 2020
DERIVATIVE FINANCIAL INSTRUMENTS  
Schedule of gain loss on derivatives
    Three months ended June 30,     Six months ended June 30,  
    2020     2019     2020     2019  
Gain (loss) on derivatives:                                
Oil derivatives   $ (402,374 )   $ 492,548     $ 2,106,671     $ 424,952  
Natural gas derivatives           8,180             7,417  
Total   $ (402,374 )   $ 500,728     $ 2,106,671     $ 432,369  
                                 
Schedule of net cash receipts from derivatives
    Three months ended June 30,     Nine months ended June 30,  
    2020     2019     2020     2019  
Net cash received from payments on derivatives                                
Oil derivatives   $ 510,609     $ 74,154     $ 1,043,894     $ 93,503  
Natural gas derivatives             4,305             4,711  
Total   $ 510,609     $ 78,459     $ 1,043,894     $ 98,214  
Schedule of notional amounts of outstanding derivative
    1st Quarter     2nd Quarter     3rd Quarter     4th Quarter  
2020                                
Oil Swaps:                                
Volume (MBbl)                 16.02       15.78  
Price per Bbl               $ 58.39     $ 55.18  
                                 
                                 
2021                                
Oil Swaps:                                
Volume (MBbl)     15.26       15.18       5.20        
Price per Bbl   $ 49.40     $ 50.87     $ 38.25        
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.20.2
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Cash $ 285,813   $ 285,813   $ 0
Impairment of oil and natural gas properties $ 0 $ 0 800,452 $ 0  
Outstanding advances     26,017    
Working capital     (9,412,190)    
Other deposits         $ 118,177
Morrisett [Member]          
Officers and employees compensation     116,000 127,450  
Pritchard [Member]          
Officers and employees compensation     116,000 $ 131,450  
Revolver Loan Agreement [Member]          
Working capital     $ (8,397,253)    
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)
6 Months Ended
Jun. 30, 2020
USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
Receivables from contracts $ 590,000
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.20.2
PROPERTY AND EQUIPMENT (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Asset retirement obligation $ 15,652,761 $ 5,788,280
Oil And Natural Gas [Member]    
Proved producing wells 5,284,041  
Proved undeveloped 2,232,458  
Lease and well equipment 1,705,092  
Asset retirement obligation 14,988,534  
Unproved leasehold costs 492,741  
Gross capitalized costs 24,702,866  
Less: accumulated depreciation, depletion and impairment (4,918,808)  
Net Capitalized costs $ 19,784,058  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.20.2
PROPERTY AND EQUIPMENT (Details 1) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
PROPERTY AND EQUIPMENT    
Other property and equipment, at cost $ 14,456  
Less: accumulated depreciation (3,400)  
Oher property and equipment, net $ 11,056 $ 12,626
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.20.2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)
1 Months Ended 2 Months Ended 3 Months Ended 6 Months Ended
Feb. 10, 2020
Jan. 27, 2020
Feb. 17, 2020
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Impairment of oil and natural gas properties       $ 0 $ 0 $ 800,452 $ 0
Consultant [Member]              
Proceeds from sale of lease interest           $ 200,000  
Sale of lease interest $ 325,000   $ 1,010,400        
Montana [Member]              
Payment for lease interests   $ 500,000          
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF OVINTIV OIL AND NATURAL GAS PROPERTIES (Details Narrative) - USD ($)
Mar. 03, 2020
Jun. 30, 2020
Deposits   $ 850,000
Return of deposits   $ 725,000
Ovintiv [Member]    
Business acquisation purchase price $ 8,500,000  
Business acquisation effective date Jan. 01, 2020  
Business acquisation closing date Apr. 30, 2020  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Accounts payable, net $ 1,040,036 $ 1,025,585
Note payable - current 8,731,494 96,704
Asset retirement obligations 15,652,761 5,788,280
Inventory of oil in tanks 567,478 $ 476,305
Fair Value of Assets Acquired [Member]    
Asset retirement obligations 9,508,484  
Oil and natural gas properties 1,935,366  
Inventory of oil in tanks 147,297  
Deposits 378,000  
Equipment and gathering lines 109,200  
Total Assets Acquired 12,078,347  
Fair Value of Liability Assumed [Member]    
Accounts payable, net 20,456  
Note payable - current 378,000  
Royalty suspense 1,185,587  
Asset retirement obligations 9,508,484  
Total liabilities assumed 11,092,527  
Total consideration $ 985,820  
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES (Details Narrative) - USD ($)
6 Months Ended
Apr. 06, 2020
Jun. 30, 2020
Dec. 31, 2019
Accounts payable   $ 20,456  
Asset retirement obligations   15,652,761 $ 5,788,280
Purchase and Sale Agreement [Member]      
Asset retirement obligations   $ 9,508,484  
Description of asset acquired Purchase certain oil and natural gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines and related facilities and equipment, and all general and limited partner interest in Pardus Oil & Gas Operating, LP. The purchase price included the assumption of certain obligations and a contingent payment not to exceed $2,000,000 reduced by certain revenue suspense amounts. The contingent payment is based on monthly oil production in excess of a specified level from the purchased properties and an average monthly realized oil price of $40 or more per barrel of oil through December 31, 2022    
December 2022 [Member]      
Average price per barrel   $ 40  
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF WARHORSE OIL AND NATURAL GAS PROPERTIES (Details Narrative)
Jun. 10, 2019
USD ($)
Producing Properties [Member]  
Purchase price $ 378,110
Warhorse Acquisition [Member]  
Purchase price 450,000
Asset retirement obligations 19,732
Sheriff fees 16,993
Lease and well equipment [Member]  
Purchase price $ 73,968
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF ENERGYQUEST II ASSETS (Details) - Energy Quest [Member]
Mar. 28, 2019
USD ($)
Fair Value of liabilities Assumed  
Accounts payable - trade $ 1,861,433
Asset retirement obligations 5,117,939
Total liabilities assumed 6,979,372
Total consideration paid 5,646,126
Fair Value of Assets Acquired  
Accounts Receivable 1,308,748
Inventory of oil in tanks 438,321
Oil properties 10,878,429
Total Assets Acquired $ 12,625,498
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.20.2
ACQUISITION OF ENERGYQUEST II ASSETS (Details Narrative) - Energy Quest [Member]
1 Months Ended
Mar. 28, 2019
USD ($)
Business acquisation purchase price $ 5,600,000
Business acquisation effective date Jan. 01, 2019
Asset retirement obligations $ 5,117,939
Accounts payable - trade 1,861,433
Total consideration paid $ 5,646,126
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Gain (loss) on derivatives $ (402,374) $ 500,728 $ 2,106,671 $ 432,369
Oil derivatives [Member]        
Gain (loss) on derivatives (402,374) 492,548 2,106,671 424,952
Natural gas derivatives [Member]        
Gain (loss) on derivatives $ 0 $ 8,180 $ 0 $ 7,417
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS (Details 1) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Net cash receipts from (payments on) derivatives: $ 510,609 $ 78,459 $ 1,043,894 $ 98,214
Oil derivatives [Member]        
Net cash receipts from (payments on) derivatives: 510,609 74,154 1,043,894 93,503
Natural gas derivatives [Member]        
Net cash receipts from (payments on) derivatives: $ 0 $ 4,305 $ 0 $ 4,711
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS (Details 2) - Oil Swaps [Member]
Oct. 31, 2021
$ / shares
Jun. 30, 2020
$ / shares
Second quarter [Member]    
Volume (Mbbl)  
Price per Bbl   $ 0
Second quarter [Member] | Subsequent Event [Member]    
Volume (Mbbl) 15.18  
Price per Bbl $ 50.87  
Third quarter [Member]    
Volume (Mbbl)   16.02
Price per Bbl   $ 58.39
Third quarter [Member] | Subsequent Event [Member]    
Volume (Mbbl) 5.20  
Price per Bbl $ 38.25  
Fourth quarter [Member]    
Volume (Mbbl)   15.78
Price per Bbl   $ 55.18
Fourth quarter [Member] | Subsequent Event [Member]    
Volume (Mbbl)  
Price per Bbl $ 0  
First quarter [Member]    
Volume (Mbbl)  
Price per Bbl   $ 0
First quarter [Member] | Subsequent Event [Member]    
Volume (Mbbl) 15.26  
Price per Bbl $ 49.40  
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.20.2
NOTES PAYABLE (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended
Mar. 27, 2019
Jun. 30, 2020
Dec. 31, 2019
Notes payable   $ 8,731,494 $ 96,704
Revolver Loan Agreement [Member]      
Reduction in commitment amount per quarter $ 150,000    
Revolver commitment amount $ 9,000,000 8,400,000  
Outstanding loan   8,397,253  
Interest expense description Agreement requires Empire Louisiana, beginning December 31, 2018 to maintain certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 4:1 on a trailing twelve month basis.    
Maturity date Mar. 27, 2021    
Revolver Loan Agreement [Member] | Maximum [Member]      
Revolver commitment amount   $ 20,000,000  
Interest rate   4.75%  
February 2019 [Member] | Unsecured Note [Member] | Investors [Member]      
Maturity date   May 01, 2019  
Interest rate   8.00%  
Notes payable   $ 90,000  
February 2019 [Member] | Unsecured Note [Member] | Morrisett [Member]      
Notes payable   15,000  
Pardus Oil & Gas Operating, LP [Member] | May 5, 2020 [Member]      
Promissory note   $ 160,700  
Description of notes payable   The loan matures on May 5, 2022 and has an interest rate of 1%. There are no payments due until November 5, 2020  
Pardus Oil & Gas, LLC [Member] | April 1, 2020 [Member]      
Promissory note   $ 378,000  
Description of notes payable   The note is payable in one installment on April 1, 2021 and bears interest at the one-year LIBOR rate (1% as of June 30, 2020).  
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.20.2
EQUITY (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Options outstanding excluded from calculation of earnings per share 5,004,167 4,167
Shares, options, warrants and conversion features issued, Shares 1,446,668  
Warrants exercise price $ 0.15  
Shares, options, warrants and conversion features issued, Amount $ 102,500  
Mr. Anthony Kamin [Member]    
Proceed from share conversion 217,000  
Shares, options, warrants and conversion features issued, Amount $ 50,000  
April 3, 2019 [Member] | Anthony Kamin [Member] | Warrant [Member]    
Expected volatility rate 213.00%  
Risk free interest rate 2.32%  
Expected useful life 5 years  
Additional paid in capital $ 620,750  
Promissory note due date Dec. 31, 2021  
Warrants issued to purchase common shares 3,000,000  
Extended maturity date Apr. 02, 2029  
April 3, 2019 [Member] | Anthony Kamin [Member] | Warrant [Member] | Exercise price one [Member]    
Share of Common Stock $ 0.15  
Warrants issued to purchase common shares 500,000  
April 3, 2019 [Member] | Anthony Kamin [Member] | Warrant [Member] | Exercise price two [Member]    
Share of Common Stock $ 0.25  
Warrants issued to purchase common shares 2,500,000  
During May 2019 [Member] | Warrant [Member]    
Expected volatility rate 217.00%  
Risk free interest rate 1.92%  
Expected useful life 31 months  
Additional paid in capital $ 58,380  
Share of Common Stock $ 0.17  
Promissory note due date Dec. 31, 2021  
Warrants issued to purchase common shares 300,000  
Stock Option Plan [Member] | April 3, 2019 [Member]    
Shares issuable 10,000,000  
Stock options vested 1,250,000  
Options expiry date April, 2029  
Expected volatility rate 213.00%  
Risk free interest rate 2.32%  
Expected useful life 5 years 4 months 15 days  
Additional paid in capital $ 812,500  
Fair of the remaining unvested options 406,250  
Compensation expense $ 406,250  
Stock Option Plan [Member] | April 3, 2019 [Member] | Pritchard [Member]    
Warrants exercise price $ 0.33  
Stock options granted 2,500,000  
Stock Option Plan [Member] | April 3, 2019 [Member] | Michael R. Morrisett [Member]    
Warrants exercise price $ 0.33  
Stock options granted 2,500,000  
Stock Option Plan [Member] | April 2020 [Member]    
Stock options vested 625,000  
Stock Option Plan [Member] | April 2021 [Member]    
Stock options vested 625,000  
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.20.2
SUBSEQUENT EVENTS (Details Narrative) - Petroleum & Independent Exploration, LLC [Member]
6 Months Ended
Jun. 30, 2020
USD ($)
$ / shares
shares
Security Purchase Agreement [Member]  
Description of security purchase agreement PIE has agreed to purchase for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d) warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up to 11,066,667 shares of Empire common stock at an exercise price of $0.141 per share. PIE is obligated to exercise the $0.20 warrants within 45 days of when 3 month trailing average production from the Empire Texas properties have increased by 20% over the trailing 3 month trailing average production as of July 2020
Warrant exercise price | $ / shares $ 0.25
Per share price | $ / shares $ 0.141
Shares Acquired, shares | shares 7,533,333
Joint Development Agreement [Member] | August 1, 2020 [Member] | Subsequent Event [Member]  
Loan from related party | $ $ 2,000,000
Rate of interest 6.00%
Maturity date Aug. 07, 2024
Proceeds from loan | $ $ 150,000
Description of working and revenue interest combined 85% working and revenue interest in the affected wells. Of the assigned interest, 70% will be used to repay the obligations under the term loan agreement. Once the term loan is repaid, PIE will assign a 35% working and revenue interest to Empire and retain a 50% working and revenue interest.
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