ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES

6 Months Ended

Jun. 30, 2021

Extractive Industries [Abstract]

ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES

6.       ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES

On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, entered into a Purchase and Sale Agreement (“the Pardus Agreement”) with Pardus Oil & Gas, LLC and Pardus Oil & Gas Operating GP, LLC 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, as amended, included the assumption of certain obligations totaling $1,584,042 and a cash payment of $40,000 for a total purchase price of $1,624,042. The transaction closed on April 7, 2020.

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

Fair Value of Assets Acquired
Accounts receivable	$	100,208
Inventory of oil in tanks		147,297
Deposits		378,000
Equipment and gathering lines		109,200
Oil and natural gas properties		10,397,821
Total Assets Acquired	$	11,132,526

Fair Value of Liabilities Assumed
Accounts payable – trade	$	20,455
Note payable – current		378,000
Royalty suspense		1,185,587
Asset retirement obligations		9,508,484
Total liabilities assumed	$	11,092,526
Purchase Price	$	40,000

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

Oil and natural gas properties

The value of oil and gas properties was based on an allocation of the purchase price which included assignment of values to the other identifiable assets acquired and liabilities assumed.

The fair value of asset retirement obligations are 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 non-recurring 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 and include liabilities primarily related to well activity prior to close.

Inventory acquired as a part of the acquisition was based on oil in tanks at the date of acquisition multiplied by the day’s spot price.