EMPIRE PETROLEUM CORP

Previous wording

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, which address activities, events, or developments that Empire 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 distinct factors, including Empire’s failure to secure short and long-term financing necessary to sustain and grow its operations, increased competition, changes in the markets in which Empire participates, the technology utilized by Empire, new legislation regarding environmental matters, general economic conditions including inflation, tariffs and interest rates, uncertainties associated with legal and regulatory matters and successful completion of the August Rights Offering, including future exercise of the warrants issued as part of the August Rights Offering. These risks and other risks that could affect Empire's business are more fully described in reports Empire files with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2024. Actual results may vary materially from the forward-looking statements. Empire undertakes no duty to update any of the forward-looking statements in this Form 10-Q.** **

Current wording

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, which address activities, events, or developments that Empire 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 distinct factors, including Empire’s failure to secure short and long-term financing necessary to sustain and grow its operations, increased competition, changes in the markets in which Empire participates, the technology utilized by Empire, new legislation regarding environmental matters, general economic conditions including inflation, tariffs and interest rates, and uncertainties associated with legal and regulatory matters. These risks and other risks that could affect Empire’s business are more fully described in reports Empire files with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2024. Actual results may vary materially from the forward-looking statements. Empire undertakes no duty to update any of the forward-looking statements in this Form 10-Q.

Previous wording

The preparation of financial statements in conformity with US GAAP requires management to use judgment to make estimates and assumptions that affect certain amounts reported in the unaudited interim consolidated financial statements. As additional information becomes available, these estimates and assumptions are subject to change and thus impact amounts reported in the future. Because estimates and assumptions require significant judgment, future actual results could differ from those estimates and could have a significant impact on our results of operations, financial position and cash flows. We re-evaluate our estimates and assumptions at least on a quarterly basis and periodically update the estimates used in the preparation of the financial statements based on management’s latest assessment of the current and projected business and general economic environment. There have been no significant changes to Empire’s critical accounting estimates during the six months ended June 30, 2025.

Current wording

The preparation of financial statements in conformity with US GAAP requires management to use judgment to make estimates and assumptions that affect certain amounts reported in the unaudited interim consolidated financial statements. As additional information becomes available, these estimates and assumptions are subject to change and thus impact amounts reported in the future. Because estimates and assumptions require significant judgment, future actual results could differ from those estimates and could have a significant impact on our results of operations, financial position and cash flows. We re-evaluate our estimates and assumptions at least on a quarterly basis and periodically update the estimates used in the preparation of the financial statements based on management’s latest assessment of the current and projected business and general economic environment. There have been no significant changes to Empire’s critical accounting estimates during the nine months ended September 30, 2025.

Previous wording

As noted below, our working capital is negative as of June 30, 2025, which is primarily the result of a lower cash balance due to capital spending as part of our Starbuck Drilling Program, return-to-production efforts in Texas and a decrease in production due to operational challenges with five wells in North Dakota during the first quarter of 2025. As of June 30, 2025, we had approximately $2.3 million in cash on hand and approximately $4.0 million available under our Credit Facility; however, the Company’s available borrowing capacity under the Credit Facility continues to decrease due to a monthly reduction to the borrowing capacity under the Credit Facility (see Note 8). Empire also entered into a promissory note with Phil Mulacek for up to a total available principal amount of $4.0 million, of which $2.0 million was obtained upon entering into the note. Finally, the Company is scheduled to complete a subscription rights offering in August 2025 which is expected to raise approximately $5.0 million of gross proceeds; however, a portion of these proceeds will be used to settle the outstanding balance of the promissory note with Phil Mulacek. Despite these transactions, the Company will require additional funds to satisfy the payables discussed above which are greater than estimated cash flow from operations over the next 12 months. Phil Mulacek and Energy Evolution, both related parties of Empire and our largest two stockholders, have indicated that they will, and have the ability to, provide sufficient support to sustain the operating, investing, and financing activities of Empire, as necessary. Management continues to seek additional sources of capital via the debt or equity markets to improve liquidity going forward. See Liquidity and Going Concern in Note 1 of Notes to Unaudited Interim Condensed Consolidated Financial Statements for further discussion of management’s plans.

Current wording

As noted below, our working capital is negative as of September 30, 2025, which is primarily the result of a lower cash balance due to capital spending as part of our Starbuck Drilling Program, return-to-production efforts in Texas and a decrease in production due to operational challenges with five wells in North Dakota during the first quarter of 2025. As of September 30, 2025, we had approximately $4.6 million in cash on hand and approximately $3.3 million available under our Credit Facility; however, the Company’s available borrowing capacity under the Credit Facility continues to decrease due to a monthly reduction to the borrowing capacity under the Credit Facility (see Note 8). Empire also entered into a promissory note and a convertible note with Phil Mulacek for up to a total aggregate available principal amount of $8.0 million, of which up to $2.0 million is still available to Empire at the discretion of Mr. Mulacek per the terms of the respective agreements. The Company also issued a warrant certificate to Mr. Mulacek (see Note 8). Finally, the Company completed a subscription rights offering in August 2025 which raised approximately $2.5 million of gross proceeds. A portion of these proceeds were used to settle the outstanding balance of the promissory note with Mr. Mulacek. Despite these transactions, the Company will require additional funds to satisfy the payables discussed above which are greater than estimated cash flow from operations over the next 12 months. Mr. Mulacek and Energy Evolution, both related parties of Empire and our largest two stockholders, have indicated that they will, and have the ability to, provide sufficient support to sustain the operating, investing, and financing activities of Empire, as necessary. Management continues to seek additional sources of capital via the debt or equity markets to improve liquidity going forward. See Liquidity and Going Concern in Note 1 of Notes to Unaudited Interim Condensed Consolidated Financial Statements for further discussion of management’s plans.

Previous wording

Empire expects to continue to incur costs related to drilling activities in core areas as well as future oil and natural gas acquisitions in core areas. During the first six months of 2025, Empire incurred approximately $3.3 million of total additions to oil and natural gas properties, primarily related to the drilling program in the Starbuck field of North Dakota and return-to-production efforts in Texas. It is expected that Empire will use a combination of debt or equity issuances, cash on hand, and cash flows from operations to fund capital programs, ongoing operations, and any potential acquisitions.

Current wording

Empire expects to continue to incur costs related to drilling activities in core areas as well as future oil and natural gas acquisitions in core areas. During the first nine months of 2025, Empire incurred approximately $4.2 million of total additions to oil and natural gas properties, primarily related to the drilling program in the Starbuck field of North Dakota and return-to-production efforts in Texas. It is expected that Empire will use a combination of debt or equity issuances, cash on hand, and cash flows from operations to fund capital programs, ongoing operations, and any potential acquisitions.

Previous wording

Cash flows from operating activities decreased period over period primarily due to lower production volumes in North Dakota and New Mexico and lower realized commodity prices consistent with general market pricing trends.

Current wording

Operating activities decreased period over period primarily due to a decrease in production period over period and lower realized commodity prices during 2025 consistent with general market pricing trends.

Previous wording

Cash flows from investing activities are primarily related to approximately $3.2 million of cash additions to oil and natural gas properties during the first six months of 2025 compared to approximately $30.1 million of cash additions to oil and natural gas properties during first half of 2024 associated with the Starbuck Drilling Program in North Dakota with the decline period over period due to the Company nearing completion of this project.

Current wording

Investing activities are primarily related to approximately $3.6 million of cash additions to oil and natural gas properties during the first nine months of 2025 compared to approximately $48.8 million of cash additions to oil and natural gas properties during the first nine months of 2024 associated with the Starbuck Drilling Program in North Dakota with the decline period over period due to the Company nearing completion of this project. A majority of the cash additions for 2025 relate to the Company’s return-to-production efforts in Texas.

Previous wording

Cash flows from financing activities include $2.0 million and $5.0 million in 2025 and 2024, respectively, from promissory notes issued to Empire by various related parties (see Note 8). Empire also borrowed approximately $3.0 million and $4.0 million on its Credit Facility during the same respective periods. In the first half of 2024, the Company also completed its April Rights Offering and issued warrants to Energy Evolution that were exercised in the period (see Note 10).

Current wording

Financing activities include $4.0 million and $5.0 million in 2025 and 2024, respectively, from promissory notes issued to Empire by various related parties offset by a $2.0 million repayment in 2025 (see Note 8). Empire had borrowings of approximately $3.0 million and $4.0 million on its Credit Facility during the same respective periods. Additionally, the Company completed its August Rights Offering in 2025 and its April Rights Offering in 2024 along with warrants to Energy Evolution that were exercised in the third quarter of 2024 (see Note 10).

Previous wording

For the six months ended June 30, 2025, Empire incurred approximately $3.3 million of total additions to oil and natural gas properties which is primarily from finalizing drilling and completions activity related to our Starbuck Drilling Program in North Dakota and continued return-to-production efforts in Texas.

Current wording

For the nine months ended September 30, 2025, Empire incurred approximately $4.2 million of total additions to oil and natural gas properties which is primarily from finalizing drilling and completions activity related to our Starbuck Drilling Program in North Dakota and continued return-to-production efforts in Texas.

Previous wording

The following table sets forth a summary of Empire’s production and operating data for the three and six months ended June 30, 2025 and 2024. Because of normal production declines, increased or decreased production due to future acquisitions, divestitures, development, and fluctuations in commodity prices, the historical information presented below should not be interpreted as being indicative of future results.

Current wording

The following table sets forth a summary of Empire’s production and operating data for the three and nine months ended September 30, 2025 and 2024. Because of normal production declines, increased or decreased production due to future acquisitions, divestitures, development, and fluctuations in commodity prices, the historical information presented below should not be interpreted as being indicative of future results.

Previous wording

Revenues for the six months ended June 30, 2025, decreased compared to the prior year primarily due to lower sales volumes across all products and lower realized oil prices.

Current wording

Revenues for the three months ended September 30, 2025 decreased compared to the prior year primarily due to lower average oil and NGL realized pricing.

Previous wording

Net oil sales volumes were approximately 136,000 Bbls for the three months ended June 30, 2025, a decrease of approximately 15% over the same period in the prior year primarily due to the redrilling efforts in North Dakota previously discussed and natural decline.

Current wording

Net oil sales volumes were approximately 144,000 Bbls for the three months ended September 30, 2025, a slight decrease over the same period in the prior year primarily due to natural decline offset by redrilling efforts in North Dakota as previously discussed.

Previous wording

Realized oil prices for the three months ended June 30, 2025, were $58.92 per barrel, while realized prices for the same period in the prior year were $76.66 per barrel, a decrease of approximately 23% due to a general decline in overall market prices.

Current wording

Realized oil prices for the three months ended September 30, 2025, were $61.00 per barrel, while realized prices for the same period in the prior year were $71.48 per barrel, a decrease of approximately 15% due to a general decline in overall market prices.

Previous wording

Realized natural gas prices for the three months ended June 30, 2025, were $0.93 per Mcf, while realized prices for the same period in the prior year were ($0.48) per Mcf. This is primarily due to the depressed natural gas prices in the second quarter of 2024 in New Mexico leading to below zero prices as deductions exceeded the natural gas prices.

Current wording

Realized natural gas prices for the three months ended September 30, 2025, were $0.94 per Mcf, while realized prices for the same period in the prior year were $0.04 per Mcf. This is primarily due to the depressed natural gas prices in the third quarter of 2024 in New Mexico leading to below zero prices as deductions exceeded the natural gas prices.

Previous wording

Realized NGLs prices for the six months ended June 30, 2025, were $12.98 per barrel, while realized prices for the same period in the prior year were $13.89 per barrel, a decrease of approximately 7%.

Current wording

Realized NGLs prices for the three months ended September 30, 2025, were $9.25 per barrel, while realized prices for the same period in the prior year were $13.85 per barrel, a decrease of approximately 33% driven by a general decline in overall market prices.

Previous wording

Lease operating expense was lower for the three months ended June 30, 2025, compared to the same period in 2024 primarily due to lower workover costs. Lease operating expense includes approximately $0.5 million of workover expense for the three months ended June 30, 2025, compared to approximately $1.6 million for the same period in 2024. The higher workover expense in 2024 was primarily in New Mexico as Empire continued work in the region to enhance and maintain production.

Current wording

Lease operating expense was lower for the three months ended September 30, 2025, compared to the same period in 2024 primarily due to lower workover costs. Lease operating expense includes approximately $0.4 million of workover expense for the three months ended September 30, 2025, compared to approximately $1.4 million for the same period in 2024. The higher workover expense in 2024 was primarily in New Mexico as Empire continued work in the region to enhance and maintain production.

Previous wording

The lower DD&A for the three months ended June 30, 2025, compared to the same period in 2024 is primarily due to lower production volumes period over period, partially offset by the acquisition of additional working interest in New Mexico and the impact of the capitalized costs associated with the new drilling activity as part of our Starbuck Drilling Program in North Dakota in second quarter of 2024. Accretion also increased slightly from prior period due to the new drilling activity and additional interest.

Current wording

The increase in DD&A for the three months ended September 30, 2025, compared to the same period in 2024 is primarily due to the impact of the capitalized costs associated with the new drilling activity as part of our Starbuck Drilling Program in North Dakota, partially offset by lower production volumes period over period. Accretion also increased slightly from prior period due to the new drilling activity and additional interest.

Previous wording

Stock-based compensation decreased period over period due to a lower number of awards in second quarter 2025. Empire utilizes stock-based compensation to compensate the Board, members of management, and retain talented personnel. Empire anticipates stock-based compensation to continue to be utilized in 2025 and beyond to attract and retain talented personnel and compensate Board members and consultants.

Current wording

Stock-based compensation decreased period over period due to a lower number of awards in third quarter 2025. Empire utilizes stock-based compensation to compensate the Board, members of management, and retain talented personnel. Empire anticipates stock-based compensation to continue to be utilized in 2025 and beyond to attract and retain talented personnel and compensate Board members and consultants.

Previous wording

Interest expense decreased for the three months ended June 30, 2025 compared to the same period in 2024 primarily due to certain non-cash interest expense in the second quarter of 2024 from the convertible promissory note further described in Note 8 partially offset by a higher average outstanding balance on the Company’s Credit Facility.

Current wording

Interest expense increased for the three months ended September 30, 2025 compared to the same period in 2024 primarily due to a higher average outstanding balance on the Company’s Credit Facility and additional equipment and vehicle notes.

Previous wording

The following table reflects Empire’s summary operating information for the six months ended June 30, 2025 and 2024. Because of normal production declines, increased or decreased drilling activity and the effects of acquisitions, the historical information presented below should not be interpreted as indicative of future results.

Current wording

The following table reflects Empire’s summary operating information for the nine months ended September 30, 2025 and 2024. Because of normal production declines, increased or decreased drilling activity and the effects of acquisitions, the historical information presented below should not be interpreted as indicative of future results.

Previous wording

Revenues for the three months ended June 30, 2025, decreased compared to the prior year primarily due to lower oil sales volumes and lower realized oil and NGL prices.

Current wording

Revenues for the nine months ended September 30, 2025, decreased compared to the prior year primarily due to lower average oil and NGL realized pricing and lower oil production volumes.

Previous wording

Net oil sales volumes were approximately 255,000 Bbls for the six months ended June 30, 2025, a decrease of approximately 12% over the same period in the prior year primarily due to redrilling efforts in North Dakota.

Current wording

Net oil sales volumes were approximately 400,000 Bbls for the nine months ended September 30, 2025, a decrease of approximately 8% over the same period in the prior year primarily due to redrilling efforts in North Dakota.

Previous wording

Realized oil prices for the six months ended June 30, 2025, were $62.84 per barrel, while realized prices for the same period in the prior year were $74.66 per barrel, a decrease of approximately 16% due to a general decline in overall market prices.

Current wording

Realized oil prices for the nine months ended September 30, 2025, were $62.17 per barrel, while realized prices for the same period in the prior year were $73.60 per barrel, a decrease of approximately 16% due to a general decline in overall market prices.

Previous wording

Realized natural gas prices for the six months ended June 30, 2025, were $1.76 per Mcf, while realized prices for the same period in the prior year were $0.58 per Mcf. The increase is due to depressed natural gas prices in New Mexico during second quarter of 2024.

Current wording

Realized natural gas prices for the nine months ended September 30, 2025, were $1.50 Mcf, while realized prices for the same period in the prior year were $0.38 per Mcf. The increase is due to depressed natural gas prices in New Mexico leading to below zero prices as deductions exceeded the natural gas prices.

Previous wording

Realized NGLs prices for the three months ended June 30, 2025, were $13.33 per barrel, while realized prices for the same period in the prior year were $15.58 per barrel, a decrease of approximately 14%.

Current wording

Realized NGLs prices for the nine months ended September 30, 2025, were $11.59 per barrel, while realized prices for the same period in the prior year were $13.87 per barrel, a decrease of approximately 16%.

Previous wording

Lease operating expense was lower for the six months ended June 30, 2025, compared to the same period in 2024 primarily due to lower workover costs. Lease operating expense includes approximately $0.9 million of workover expense for the six months ended June 30, 2025, compared to approximately $3.6 million for the same period in 2024. The higher workover expense in 2024 was primarily in New Mexico as Empire continued work in the region to enhance and maintain production.

Current wording

Lease operating expense was lower for the nine months ended September 30, 2025, compared to the same period in 2024 primarily due to lower workover costs. Lease operating expense includes approximately $1.2 million of workover expense for the nine months ended September 30, 2025, compared to approximately $5.3 million for the same period in 2024. The higher workover expense in 2024 was primarily in New Mexico as Empire continued work in the region to enhance and maintain production.

Previous wording

Production taxes were lower for the six months ended June 30, 2025, compared to the same period in 2024 as a result of the lower product revenues discussed above.

Current wording

Production taxes were lower for the nine months ended September 30, 2025, compared to the same period in 2024 as a result of the lower product revenues discussed above.

Previous wording

The higher DD&A for the six months ended June 30, 2025, compared to the same period in 2024 is primarily due to the acquisition of additional working interest in New Mexico and the impact of the capitalized costs associated with the new drilling activity as part of our Starbuck Drilling Program in North Dakota in second quarter of 2024, partially offset by lower production volumes period over period. Accretion also increased slightly from prior period due to the new drilling activity and additional interest.

Current wording

The higher DD&A for the nine months ended September 30, 2025, compared to the same period in 2024 is primarily due to the acquisition of additional working interest in New Mexico and the impact of the capitalized costs associated with the new drilling activity as part of our Starbuck Drilling Program in North Dakota, partially offset by lower production volumes period over period. Accretion also increased slightly from prior period due to the new drilling activity and additional interest.

Previous wording

General and administrative expense, excluding stock-based compensation, increased for the three months ended June 30, 2025, compared to the same period in 2024 primarily due to an increase in salaries and benefits period over period associated with an increase in employee headcount.

Current wording

General and administrative expense, excluding stock-based compensation, increased for the nine months ended September 30, 2025, compared to the same period in 2024 primarily due to an increase in salaries and benefits period over period associated with an increase in employee headcount offset by lower professional fees for the same period over period.

Previous wording

Interest expense decreased for the six months ended June 30, 2025 compared to the same period in 2024 primarily due to certain non-cash interest expense in 2024 from the convertible promissory note further described in Note 8 partially offset by a higher average outstanding balance on the Company’s Credit Facility.

Current wording

Interest expense decreased for the nine months ended September 30, 2025, compared to the same period in 2024 primarily due to certain non-cash interest expense in 2024 from the February Note further described in Note 8 partially offset by a higher average outstanding balance on the Company’s Credit Facility and additional equipment and vehicle notes.