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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2025

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

For the transition period from to

Commission File Number 001-16653

EMPIRE PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)


delaware		73-1238709
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2200 S. Utica Place, Suite 150, Tulsa, OK 74114

(Address of Principal Executive Offices) (Zip Code)

(539) 444-8002

(Registrant’s telephone number, including area code)

(Former name, 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

Common Stock $0.001 par value	EP	NYSE American

Securities registered pursuant to 12(g) of the Act: 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☑
Emerging growth company ☐	Smaller reporting 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 Exchange Act). ☐ Yes ☑ No

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of November 12, 2025 was 34,855,801.

Table of Contents

EMPIRE PETROLEUM CORPORATION

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 (Unaudited)	2

	Condensed Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited)	3

	Condensed Consolidated Statements of Changes in Stockholders’ Equity – For the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2025 and 2024 (Unaudited)	5

	Notes to Unaudited Interim Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

	Signatures	34

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)


	September 30,		December 31,
	2025		2024
ASSETS
Current Assets:
Cash	$	4,601	$	2,251
Accounts Receivable		8,331		8,155
Inventory		1,218		1,305
Prepaids		536		640
Total Current Assets		14,686		12,351

Property and Equipment:
Oil and Natural Gas Properties, Successful Efforts		144,395		140,675
Less: Accumulated Depletion, Amortization and Impairment		(39,237)		(31,974)
Total Oil and Gas Properties, Net		105,158		108,701
Other Property and Equipment, Net		1,697		1,391
Total Property and Equipment, Net		106,855		110,092

Other Noncurrent Assets		1,451		1,425

Total Assets	$	122,992	$	123,868

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	10,574	$	10,452
Accrued Expenses		12,003		10,348
Current Portion of Lease Liability		330		400
Current Portion of Long-Term Debt		407		70
Total Current Liabilities		23,314		21,270

Long-Term Debt		14,801		11,266
Long-Term Note Payable - Related Party, net (Note 8)		752		—
Long-Term Lease Liability		61		144
Derivative Instruments (Note 8)		745		—
Asset Retirement Obligations		29,656		28,423
Total Liabilities		69,329		61,103

Commitments and Contingencies (Note 14)

Stockholders’ Equity:
Series A Preferred Stock - $0.001 Par Value, 10,000,000 Shares Authorized, 6 and 6 Shares Issued and Outstanding, Respectively		—		—
Common Stock - $0.001 Par Value 190,000,000 Shares Authorized, 34,266,208 and 33,667,132 Shares Issued and Outstanding, Respectively		94		93
Additional Paid-in-Capital		147,507		143,489
Accumulated Deficit		(93,938)		(80,817)

Total Stockholders’ Equity		53,663		62,765

Total Liabilities and Stockholders’ Equity	$	122,992	$	123,868

See accompanying notes to unaudited interim condensed consolidated financial statements.

Table of Contents

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except shares data)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Revenue:
Oil Sales	$	8,790	$	10,341	$	24,844	$	32,070
Gas Sales		196		9		965		270
Natural Gas Liquid (“NGL”) Sales		388		542		1,304		1,575
Total Product Revenues		9,374		10,892		27,113		33,915
Other		14		15		31		36
Gain (Loss) on Derivatives		—		470		—		(389)
Total Revenue		9,388		11,377		27,144		33,562

Costs and Expenses:
Lease Operating Expense		5,735		6,734		17,888		21,664
Production and Ad Valorem Taxes		755		984		2,235		2,883
Depreciation, Depletion & Amortization		2,794		2,596		7,596		6,763
Accretion of Asset Retirement Obligation		534		510		1,594		1,487
General and Administrative:
General and Administrative		2,881		3,636		8,984		8,869
Stock-Based Compensation		238		335		1,255		1,637
Total General and Administrative		3,119		3,971		10,239		10,506

Total Cost and Expenses		12,937		14,795		39,552		43,303

Operating Loss		(3,549)		(3,418)		(12,408)		(9,741)

Other Income and (Expense):
Interest Expense		(388)		(196)		(1,018)		(1,246)
Other Income (Expense)		93		(27)		305		(1,018)

Loss Before Taxes		(3,844)		(3,641)		(13,121)		(12,005)

Income Tax Benefit (Provision)		—		—		—		—

Net Loss	$	(3,844)	$	(3,641)	$	(13,121)	$	(12,005)

Net Loss per Common Share:
Basic	$	(0.11)	$	(0.12)	$	(0.39)	$	(0.41)
Diluted	$	(0.11)	$	(0.12)	$	(0.39)	$	(0.41)

Weighted-Average Number of Common Shares Outstanding:
Basic		34,043,173		31,619,333		33,906,417		29,055,331
Diluted		34,043,173		31,619,333		33,906,417		29,055,331

See accompanying notes to unaudited interim condensed consolidated financial statements.

Table of Contents

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	Common Stock			Preferred Stock			Additional		Accumulated
	Shares	Par Value		Shares	Par Value		Paid-in-Capital		Deficit		Total
Balances, December 31, 2024	33,667	$	93	6	$	—	$	143,489	$	(80,817)	$	62,765

Net Loss	—		—	—		—		—		(4,221)		(4,221)

Stock-Based Compensation	44		—	—		—		531		—		531

Balances, March 31, 2025	33,711	$	93	6	$	—	$	144,020	$	(85,038)	$	59,075

Net Loss	—		—	—		—		—		(5,056)		(5,056)

Stock-Based Compensation	46		—	—		—		486		—		486

Balances, June 30, 2025	33,757	$	93	6	$	—	$	144,506	$	(90,094)	$	54,505

Net Loss	—		—	—		—		—		(3,844)		(3,844)

Rights Offering (Note 10)	469		1	—		—		2,358		—		2,359

Stock-Based Compensation	40		—	—		—		238		—		238

Debt Discount Related to Warrants (Note 8)	—		—	—		—		405		—		405

Balances, September 30, 2025	34,266	$	94	6	$	—	$	147,507	$	(93,938)	$	53,663


	Common Stock			Preferred Stock			Additional		Accumulated
	Shares	Par Value		Shares	Par Value		Paid-in-Capital		Deficit		Total
Balances, December 31, 2023	25,504	$	85	6	$	—	$	99,490	$	(64,619)	$	34,956

Net Loss	—		—	—		—		—		(3,974)		(3,974)

Stock-Based Compensation	120		—	—		—		710		—		710

Balances, March 31, 2024	25,624	$	85	6	$	—	$	100,200	$	(68,593)	$	31,692

Net Loss	—		—	—		—		—		(4,390)		(4,390)

Rights Offering (Note 10)	4,132		4	—		—		20,507		—		20,511

Conversion of Related-Party Note (Note 8)	800		1	—		—		6,160		—		6,161

Partial Conversion of Option to Purchase (Note 3)	600		1	—		—		3,155		—		3,156

Warrants Exercised (Note 10)	129		—	—		—		950		—		950

Stock-Based Compensation	91		—	—		—		592		—		592

Balances, June 30, 2024	31,376	$	91	6	$	—	$	131,564	$	(72,983)	$	58,672

Net Loss	—		—	—		—		—		(3,641)		(3,641)

Conversion of Related-Party Note (Note 10)	205		—	—		—		1,087		—		1,087

Stock Issued for Purchase Option (Note 3)	17		—	—		—		76		—		76

Stock-Based Compensation	59		—	—		—		335		—		335

Balances, September 30, 2024	31,657	$	91	6	$	—	$	133,062	$	(76,624)	$	56,529

See accompanying notes to unaudited interim condensed consolidated financial statements.

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EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Nine Months Ended September 30,
	2025		2024
Cash Flows From Operating Activities:
Net Loss	$	(13,121)	$	(12,005)

Adjustments to Reconcile Net Loss to Net Cash (Used In) Provided By Operating Activities:
Stock-Based Compensation		1,255		1,637
Amortization of Right-of-Use Assets		358		407
Depreciation, Depletion & Amortization		7,596		6,763
Accretion of Asset Retirement Obligations		1,594		1,487
Loss on Commodity Derivatives		—		389
Settlement on or Purchases of Derivative Instruments		—		18
Loss (Gain) on Financial Derivatives (Note 8)		(97)		998
Amortization of Debt Discount on Convertible Notes		—		500
Loss on Extinguishment of Debt		—		10
Gain on Sale of Oil and Natural Gas Properties		(168)		—
Gain on Sale of Other Fixed Assets		(32)		—
Change in Operating Assets and Liabilities:
Accounts Receivable		(177)		1,647
Inventory, Oil in Tanks		87		(66)
Prepaids, Current		645		672
Accounts Payable		(471)		12,274
Accrued Expenses		1,655		1,071
Other Long-Term Assets and Liabilities		(319)		(885)
Net Cash (Used In) Provided By Operating Activities		(1,195)		14,917

Cash Flows From Investing Activities:
Disposal of Oil and Natural Gas Properties		575		—
Capital Expenditures - Oil and Natural Gas Properties (1)		(3,624)		(48,759)
Disposal of Other Fixed Assets		49		—
Purchase of Other Fixed Assets		(53)		(139)
Cash Paid for Right-of-Use Assets		(331)		(376)
Net Cash Used In Investing Activities		(3,384)		(49,274)

Cash Flows From Financing Activities:
Borrowings on Credit Facility		3,000		3,950
Proceeds from Promissory Notes - Related Party (Note 8)		4,000		5,000
Payments on Promissory Note - Related Party (Note 8)		(2,000)		—
Principal Payments of Debt		(429)		(377)
Proceeds from Rights Offering, net of transaction costs (Note 10)		2,358		20,512
Net Proceeds from Warrant Exercise (Note 10)		—		629
Net Cash Provided By Financing Activities		6,929		29,714

Net Change in Cash		2,350		(4,643)

Cash - Beginning of Period		2,251		7,793

Cash - End of Period	$	4,601	$	3,150

Supplemental Cash Flow Information:
Cash Paid for Interest	$	970	$	664

(1)	Incurred capital expenditures were approximately $4.2 million and $38.3 million for the respective periods. The differences between incurred and cash capital expenditures is due to changes in related accounts payable.

See accompanying notes to unaudited interim condensed consolidated financial statements.

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EMPIRE PETROLEUM CORPORATION

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

Note 1 – Organization and Basis of Presentation

Empire Petroleum Corporation (“Empire,” collectively with its subsidiaries) is an independent energy company operator engaged in optimizing developed production by employing field management methods to maximize reserve recovery while minimizing costs. Empire operates the following wholly-owned subsidiaries in its areas of operations:

●Empire New Mexico LLC (“Empire New Mexico”), consisting of the following entities:

Empire New Mexico LLC d/b/a Green Tree New Mexico

Empire EMSU LLC

Empire EMSU-B LLC

Empire AGU LLC

Empire NM Assets LLC

●Empire North Dakota (“Empire North Dakota”), consisting of the following entities:

Empire North Dakota LLC

Empire North Dakota Acquisition LLC (“Empire NDA”)

Empire Northwest Shelf LLC

●Empire Texas (“Empire Texas”), consisting of the following entities:

Empire Texas LLC

Empire Texas Operating LLC

Empire Texas Development LLC

Empire Texas GP LLC

Pardus Oil & Gas Operating, LP (owned 1% by Empire Texas GP LLC and 99% by Empire Texas LLC)

●Empire Louisiana LLC (“Empire Louisiana”)

Empire was incorporated in the State of Delaware in 1985. The unaudited interim condensed consolidated financial statements include the accounts of Empire and its wholly-owned subsidiaries. The terms “Company,” “we,” “us,” “our,” and similar terms refer to Empire Petroleum Corporation and its subsidiaries.

The accompanying unaudited interim condensed consolidated financial statements of Empire have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of Empire’s financial position, the results of operations, and the cash flows for the interim period are included. All intercompany accounts and transactions have been eliminated in consolidation. 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, 2025.

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, 2024, which are contained in Empire’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2025.

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Liquidity and Going Concern

The Company has a revolving line of credit agreement (Note 8) with Equity Bank which requires the Company to maintain compliance with certain financial covenants computed on a quarterly and annual basis. As of September 30, 2025, the Company was in compliance with all required covenants and projected to be in compliance with all debt covenants over the next 12 months. However, the Company carried a negative working capital of approximately $8.6 million as of September 30, 2025. While there was a slight improvement from December 31, 2024, the continued negative working capital is primarily due to costs incurred for the Starbuck Drilling Program in North Dakota, on-going unforeseen operational costs from the Company’s return-to-production program in Texas, and lower oil production in North Dakota due to redrilling activity on certain wells. Additionally, the Company’s debt obligations continue to increase with various related parties discussed below. To meet its obligations, the Company increased its revolver commitment to $20.0 million in November 2024 which had approximately $3.3 million remaining unused commitment as of September 30, 2025, which can be used for future obligations; however, the revolver commitment is reduced monthly by $0.25 million commencing on December 31, 2024 (see Note 8), limiting future access to capital. Further, the Company entered into a promissory note and a convertible note with Phil Mulacek in June and September 2025, respectively, for total aggregate available principal of $8.0 million. Of the total $8.0 million available, as of September 30, 2025, $2.0 million is outstanding. The Company may borrow up to an additional $2.0 million of the available principal at the discretion of Mr. Mulacek, per the terms of the respective agreements. (see Note 8). The Company also issued warrants to Mr. Mulacek in connection with the convertible note which the Company expects to be exercised (see Note 8). Finally, a subscription rights offering was completed in August 2025, which raised approximately $2.5 million of gross proceeds (see Note 10). A portion of these proceeds were used to settle $2.0 million of the outstanding balance of the promissory note with Mr. Mulacek, per the terms of the note, during the third quarter. While these transactions provide additional funding towards the Company’s obligations, the Company expects to have negative working capital for the remainder of 2025 and future expected operating cash flows do not sufficiently meet the Company’s obligations for the next 12 months. Given the negative working capital and insufficient expected operating cash flow there is substantial doubt about the Company’s ability to continue as a going concern.

Empire has committed financial support from Mr. Mulacek who owns approximately 22.6% of our common stock outstanding as of September 30, 2025, and Energy Evolution Master Fund, Ltd. (“Energy Evolution”), our largest stockholder who owns approximately 31.3% of our common stock outstanding as of September 30, 2025. Both are related parties of the Company (see Note 13). Mr. Mulacek and Energy Evolution are willing and able to provide these additional funds, if required, for Empire to continue to meet its obligations over the next 12 months. These additional funds may be raised through related party warrants, or a related party note payable that may or may not have conversion rights into shares of common stock of Empire.

Management has considered these plans, including if they are within the control of Empire, in evaluating Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements - Going Concern. Management believes the above actions are sufficient to allow Empire to meet its obligations as they become due for a period of at least 12 months from the issuance of these financial statements. Management believes that its plans, and support from the existing related-party stockholders discussed above, is probable and has alleviated the substantial doubt regarding Empire’s ability to continue as a going concern.

Note 2 – Summary of Significant Accounting Policies

There have been no material changes to significant accounting policies and estimates from the information provided in the Form 10-K for the year ended December 31, 2024.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts and balances of the Company and have been prepared in accordance with US GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Estimated quantities of crude oil, natural gas and natural gas liquids (“NGLs”) reserves are the most significant of the Company’s estimates. All reserve data used in the preparation of the unaudited interim condensed consolidated financial statements, including depletion, are based on estimates. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil, natural gas and NGLs. There are numerous uncertainties inherent in estimating quantities of proved crude oil, natural gas and NGLs reserves. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, reserve estimates may be different from the quantities of crude oil, natural gas and NGLs that are ultimately recovered.

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Other items subject to estimates and assumptions include, but are not limited to, the carrying amounts of property, plant and equipment, asset retirement obligations, valuation allowances for deferred income tax assets, and valuation of derivative instruments. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment. The volatility of commodity prices results in increased uncertainty inherent in such estimates and assumptions.

Although management believes these estimates are reasonable, actual results may differ from estimates and assumptions of future events and these revisions could be material. Future production may vary materially from estimated oil and natural gas proved reserves. Actual future prices may vary significantly from price assumptions used for determining proved reserves and for financial reporting.

Accounts Receivable

Accounts receivable include estimated amounts due from crude oil, natural gas, and NGLs purchasers and from non-operating working interest owners. Accrued revenue related to product sales from purchasers and operators are due under normal trade terms, generally requiring payment within 60 days of production. For receivables from joint interest owners, the Company generally has the ability to withhold future revenue disbursements to recover any non-payment of joint interest billings.

Receivables are stated at amounts due, net of an allowance for credit losses, if necessary, and are considered past due if full payment is not received by the contractual due date. The Company estimates uncollectible amounts based on the length of time that the accounts receivable has been outstanding, historical collection experience and current and future economic and market conditions, if failure to collect is expected to occur. Past due accounts are generally written off against the allowance for credit losses account only after all collection attempts have been exhausted. The Company did not have an allowance for credit losses as of September 30, 2025.

Inventory

Inventory primarily consists of oil in tanks which has not been delivered and is valued at the lower of cost or net realizable value.

Concentrations of Credit Risk

Empire’s accounts receivable are primarily receivables from oil and natural gas purchasers and joint interest owners. The oil and natural gas purchasers consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, we make full payments for costs associated with the property and seek reimbursement from the other working interest owners in the property for their share of those costs. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for the offsetting of amounts payable or receivable between the Company and its joint interest owners. Our joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general were adversely affected, the ability of the joint interest partners to reimburse Empire could be adversely affected.

Convertible Debt and Derivative Liability

In connection with Empire’s issuance of a promissory note in the first quarter of 2024 and third quarter of 2025, Empire bifurcated the embedded conversion option and recorded the embedded conversion option as a long-term derivative liability in Empire’s unaudited interim condensed consolidated balance sheets in accordance with FASB ASC 815, Derivatives and Hedging. The convertible debt and the derivative liability associated with the respective promissory notes were separately presented as long-term note payable – related party and long-term derivative instruments on the consolidated financial statements for the applicable periods. The convertible debt was carried at amortized cost. The derivative liability was remeasured at each reporting period using a binomial lattice model with changes in fair value recorded in other income (expense) of the applicable period’s unaudited interim condensed consolidated statements of operations. The conversion option related to the 2024 promissory note was exercised in the second quarter of 2024. See Note 8 for further details.

The Company issued warrants with the promissory note in the third quarter of 2025 and determined they shall be classified as equity in accordance with FASB ASC 815, Derivatives and Hedging. The warrants were recorded as a discount to the long-term note payable – related party and presented as net on the unaudited interim condensed consolidated balance sheets. The value of the discount was determined by using a Black-Scholes model and recorded at its estimated relative fair value on the date the warrants were issued. It will be amortized over the life of the corresponding promissory note within interest expense in the unaudited interim condensed consolidated statements of operation. See Note 8 for further details.

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The Company enters into hedge agreements from time to time to manage its exposure to oil and natural gas price fluctuations. The fair value of derivative contracts is recognized as an asset or liability on the Company’s unaudited interim condensed consolidated balance sheets. Realized gain or loss is recognized as a component of revenue when the derivative contracts mature. For contracts which have not matured, an unrealized gain or loss is recorded based on the change in the fair value of the outstanding contracts.

Oil and Natural Gas and Other Properties

The Company uses the successful efforts method of accounting for its oil and gas activities. Costs incurred are deferred until exploration and completion results are evaluated. At such time, costs of activities with economically recoverable reserves are capitalized as proven properties, and costs of unsuccessful or uneconomical activities are expensed. Exploration drilling costs are expensed if recoverable reserves are not found. Costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred. Upon sale or retirement of oil and natural gas properties, the costs and related accumulated depletion and amortization are eliminated from the accounts and the resulting gain or loss is recognized.

Capitalized drilling costs are reviewed periodically for impairment. Costs related to impaired prospects or unsuccessful exploratory drilling are charged to expense. Management’s assessment of the results of exploration activities, commodity price outlooks, planned future sales or expiration of all or a portion of such leaseholds impact the amount and timing of impairment provisions. An impairment expense could result if oil and gas prices decline in the future as it may not be economical to develop some of these unproved properties.

Lease options are capitalized as unproved property acquisition costs and are reviewed for impairment if indicators exist that the carrying value of the lease option may not be recoverable. If the lease options become impaired, expire or are abandoned, the options will be expensed. If proved reserves are discovered after the options are exercised, these costs will be reclassified as proved property.

Depletion and amortization of producing properties is computed on the units-of-production method on a property-by-property basis. The units-of-production method is based primarily on estimates of proved reserve quantities. Due to uncertainties inherent in this estimation process, it is at least reasonably possible that reserve quantities will be revised in the near term. Changes in estimated reserve quantities are applied to depletion and amortization computations prospectively.

Other property and equipment is depreciated on the straight-line method.

Revenue Recognition

The Company’s revenues are comprised solely of revenues from customers and include the sale of oil, natural gas and NGLs. The Company believes that the disaggregation of revenue into these three major product types, as presented in the consolidated statements of operations, appropriately depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors based on its single geographic region, the continental United States. Revenues are recognized at a point in time when production is sold to a purchaser at a determinable price, delivery has occurred, control has transferred and it is probable substantially all of the consideration will be collected. The Company fulfills its performance obligations under its customer contracts through delivery of oil, natural gas and NGLs and revenues are recorded on a monthly basis. The Company receives payment from one to three months after delivery. Generally, each unit of product represents a separate performance obligation. The prices received for oil, natural gas and NGLs sales under the Company’s contracts are generally derived from stated market prices which are then adjusted to reflect deductions including transportation, fractionation and processing. As a result, revenues from the sale of oil, natural gas and NGLs will decrease if market prices decline. The sales of oil, natural gas and NGLs, as presented on the unaudited interim condensed consolidated statements of operations, represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling oil, natural gas and NGLs on behalf of royalty or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis. To the extent actual volumes and prices of oil and natural gas sales are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and prices for those properties are estimated and recorded. Variances between the Company’s estimated revenue and actual payment are recorded in the month the payment is received. Historically, these differences have been insignificant.

At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are recorded in accounts receivable on the consolidated balance sheets. Taxes assessed by governmental authorities on oil, natural gas and NGLs sales are presented separately from such revenues in the unaudited interim condensed consolidated statements of operations.

Oil Sales

Oil production is transported from the wellhead to tank batteries or delivery points through flow-lines or gathering systems. Purchasers of the oil take delivery at the tank batteries and transport the oil by truck or at a pipeline delivery point and the Company collects a market price, net of pricing differentials. Revenue is recognized when control transfers to the purchaser at the net price received by the Company.

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Natural Gas and NGLs Sales

Under the Company’s natural gas sales arrangements, the purchaser takes control of wet gas at a delivery point near the wellhead or at the inlet of the purchaser’s processing facility. The purchaser gathers and processes the wet gas and remits proceeds to the Company for the resulting natural gas and NGLs sales. Based on the nature of these arrangements, the purchaser is the Company’s processor, thus, the Company recognizes natural gas and NGLs sales based on the net amount of proceeds received from the purchaser.

Transaction Price Allocated to Remaining Performance Obligations

Substantially all of the Company’s product sales are short-term in nature with a contract term of one year or less. For these contracts, the Company has utilized the practical expedient in Accounting Standards Update (“ASU”) 2024, Revenue from Contracts with Customers (“Topic 606”) which exempts the Company from the requirements to disclose the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

For the Company’s product sales that have a contract term greater than one year, the Company has utilized the practical expedient in Topic 606 which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.

Prior-Period Performance Obligations

The Company records revenue in the month that product is delivered to the purchaser. Settlement statements for certain natural gas and NGLs sales, however, may not be received for 30 to 90 days after the date the product is delivered, and as a result the Company is required to estimate the amount of product delivered to the purchaser and the price that will be received for the sale of the product. In these situations, the Company records the differences between its estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Any identified differences between the Company’s revenue estimates and actual revenue received have historically been insignificant. For the nine months ended September 30, 2025 and 2024, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

Segment Reporting

The Company operates as one operating segment and one reportable segment which is engaged in the exploration, development, and production of oil, gas, and NGLs in New Mexico, North Dakota, Montana, Texas, and Louisiana, from which all of its revenues are derived and expenses incurred. All financial results are reviewed by the Chief Executive Officer (“CEO”), the Company’s Chief Operating Decision Maker (“CODM”), on a consolidated basis to evaluate performance of the Company. The single segment constitutes all of the consolidated entity and the accompanying unaudited interim condensed consolidated financial statements and the notes to the accompanying unaudited interim condensed consolidated financial statements are representative of such amounts. See Note 16.

Related Party Transactions

Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. FASB ASC 850, Related Party Disclosures (“Topic 850”) requires that transactions with related parties that would have influence in decision making shall be disclosed so that users of the financial statements can evaluate their significance. Related party transactions typically occur within the context of the following relationships: affiliates of the entity; entities for which investments in their equity securities is typically accounted for under the equity method by the investing entity; trusts for the benefit of employees; principal owners of the entity and members of their immediate families; management of the entity and members of their immediate families; and other parties that can significantly influence the management or operating policies of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. See Note 13 for a listing of related party transactions.

Fair Value Measurements

The FASB ASC 820, Fair Value Measurement (“Topic 820”) 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.

The three-level fair value hierarchy for disclosure of fair value measurements defined by Topic 820 is as follows:

Level 1 – Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

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Level 2 – Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 – Prices or valuations that require unobservable inputs that are both significant to the fair value measurement and unobservable. Valuation under Level 3 generally involves a significant degree of judgment from management.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve a degree of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity. Empire reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels for the nine months ended September 30, 2025. See Note 15.

Recently Issued Accounting Standards

The FASB periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. Empire has reviewed the recently issued pronouncements and concluded that the following new accounting standards updates are applicable:

In December 2023, FASB, issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures (“Topic 740”). The guidance in Topic 740 improves the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted and should be applied prospectively but can be adopted retrospectively. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In November 2024, FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (“Subtopic 220-40”), which expands disclosures around a public entity’s costs and expenses of specific items (i.e. employee compensation and depreciation, depletion and amortization (“DD&A”)), requires the inclusion of amounts that are required to be disclosed under US GAAP in the same disclosure as other disaggregation requirements, requires qualitative descriptions of amounts remaining in expense captions that are not separately disaggregated quantitatively, and requires disclosure of total selling expenses, and in annual periods, the definition of selling expenses. The amendment does not change or remove existing disclosure requirements. The amendment is effective for fiscal years beginning after December 15, 2026, and interim periods with fiscal years beginning after December 15, 2027. Early adoption is permitted, and the amendment can be adopted prospectively or retrospectively to any or all periods presented in the financial statements. Empire is currently assessing the impact of adopting this standard which is expected to only affect financial statement disclosures.

In November 2024, FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Option: Induced Conversions of Convertible Debt Instruments, to improve the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20. ASU 2024-04 is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of the annual reporting period for all entities that have adopted ASU 2020-06 and may be adopted either on a prospective or retrospective basis. The Company early adopted this ASU on January 1, 2025, on a prospective basis and determined it did not have a material impact on the period’s consolidated financial statements.

Note 3 – Property

The aggregate capitalized costs of oil and natural gas properties are as follows:


	September 30,		December 31,
	2025		2024
Proved properties	$	140,333	$	134,239
Unproved properties		3,941		3,858
Work in process		121		2,578
Gross capitalized costs		144,395		140,675
Accumulated depletion, amortization and impairment		(39,237)		(31,974)
Total Oil and gas properties, net	$	105,158	$	108,701

Depletion and amortization expense related to oil and gas properties for the three months ended September 30, 2025 and 2024, was approximately $2.7 million and $2.5 million, respectively. Depletion and amortization expense related to oil and gas properties for the nine months ended September 30, 2025 and 2024, was approximately $7.3 million and $6.6 million, respectively.

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Proved oil and natural gas properties are reviewed for impairment at least annually, or as indicators of impairment arise. There have been no indicators of impairment during the nine months ended September 30, 2025.

On May 1, 2025, the Company amended its ability to further extend the Purchase Option to allow for payment for such extension to be made in cash in lieu of the Option Shares, due and payable on or before September 30, 2025. The Company made a cash payment to Energy Evolution on September 30, 2025 to extend the Purchase Option for an additional year.

Net proceeds for the sale of certain non-core oil and natural gas properties totaled approximately $0.4 million and $0.6 million during the three and nine months ended September 30, 2025, respectively, resulting in losses of approximately $0.1 million and gains of approximately $0.2 million during the same periods which are reflected within other income (expense) on the unaudited interim condensed consolidated statements of operations.

Other property and equipment consists of operating lease assets, vehicles, office furniture, and equipment with lives ranging from three to five years. The capitalized costs of other property and equipment are as follows:


	September 30,		December 31,
	2025		2024
Other property and equipment, at cost	$	4,188	$	3,304
Less: accumulated depreciation		(2,491)		(1,913)
Total Other property and equipment, net	$	1,697	$	1,391

Depreciation expense related to other property and equipment for the three months ended September 30, 2025 and 2024, was approximately $0.1 million for both periods. Depreciation expense related to other property and equipment for the nine months ended September 30, 2025 and 2024, was approximately $0.3 million and $0.2 million, respectively.

Note 4 – Asset Retirement Obligations

The Company’s asset retirement obligations (“ARO”) represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate its producing properties at the end of their productive lives, in accordance with applicable state laws. Market risk premiums associated with asset retirement obligations are estimated to represent a component of the Company’s credit-adjusted risk-free rate that is utilized in the calculations of AROs.

The Company’s ARO activities are summarized in the following table:


	For the Nine Months Ended September 30,
	2025		2024
Asset retirement obligations, beginning of period	$	30,188	$	28,168
Liabilities incurred from drilling activity and assumed in acquisitions		—		877
Revisions		—		—
Liabilities settled from plugging activity and disposals		(361)		(864)
Accretion expense		1,594		1,487
Asset retirement obligations, end of period	$	31,421	$	29,668
Less: current portion included in Accrued expenses		1,765		700
Asset retirement obligations, long-term	$	29,656	$	28,968

The liabilities incurred from drilling activity in 2024 primarily relate to the completion of new wells as part of Empire’s North Dakota Starbuck Drilling Program. The liabilities assumed in acquisitions in 2024 relate to additional working interest acquired in New Mexico. (see Note 3). The liabilities settled from disposals in 2025 relate to the divestiture of certain non-core oil and natural gas properties further described in Note 3. There were no liabilities settled from disposals in 2024.

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Note 5 – Commodity Derivative Financial Instruments

The Company has used derivative financial instruments to manage its exposure to commodity price fluctuations in the past. Commodity derivative instruments have been used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells. The Company does not enter into derivative financial instruments for speculative or trading purposes. The Company’s derivative financial instrument activity has consisted of swaps and put options.

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 unaudited interim condensed consolidated statements of operations as they occur. These contracts are recognized and recorded at fair value as an asset or liability on the Company’s unaudited interim condensed consolidated balance sheets. Cash receipts or payments upon settlement of swaps and put options are reflected in the operating activities section of its unaudited interim condensed consolidated statement of cash flows.

The following table summarizes the net realized and unrealized amounts reported in earnings related to the oil derivative instruments:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Gain on derivatives, realized	$	—	$	282	$	—	$	18
Gain (loss) on derivatives, unrealized		—		188		—		(407)
Gain (loss) on derivatives, net	$	—	$	470	$	—	$	(389)

The following table represents the Company’s net cash settlements received on derivatives:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Cash settlements received on oil derivatives, net	$	—	$	282	$	—	$	18

The Company did not have any open commodity derivative positions as of September 30, 2025.

Note 6 – Accounts Receivable

The following table represents Empire’s accounts receivable as of the dates presented:


	September 30,		December 31,
	2025		2024
Oil, Gas and NGLs receivables	$	2,263	$	2,628
Joint interest billings		5,243		5,072
Joint interest billings - related party		712		394
Other		113		61
Total Accounts receivable	$	8,331	$	8,155

Note 7 – Accrued Expenses

The following table represents Empire’s accrued expenses as of the dates presented:


	September 30,		December 31,
	2025		2024
Accrued and suspended third-party revenue	$	7,925	$	5,987
Accrued salaries and payroll taxes		975		1,091
Accrued production taxes		896		837
Asset retirement obligations - current		1,765		1,765
Other		442		668
Total Accrued expenses	$	12,003	$	10,348

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Note 8 – Debt Including Debt with Related Parties

The following table represents Empire’s outstanding debt as of the dates presented:


	September 30,		December 31,
	2025		2024
Equity Bank Credit Facility	$	14,089	$	11,089
Note Payable to insurance provider, bears 8.25% interest, matures January 2026, monthly payments of principal and interest of $58,103		205		—
Equipment and vehicle notes, 0.00% to 9.59% interest rates, due in 2025 to 2030 with monthly payments ranging from $900 to $1,400 per month (1)		914		247
Total Debt		15,208		11,336
Less: Current Maturities		(407)		(70)
Long-Term Debt	$	14,801	$	11,266

(1)

Weighted-average interest rate of 9.38% and 8.32% as of September 30, 2025 and December 31, 2024, respectively.

The following table represents Empire’s outstanding related-party debt as of the dates presented:


	September 30,		December 31,
	2025		2024
Promissory Note - Related Party	$	1,158	$	—
Less: Debt discount on warrants issued with Promissory Note - Related Party		(406)		—
Long-Term Note Payable - Related Party, net	$	752	$	—

On December 29, 2023, Empire North Dakota and Empire NDA (“Original Borrowers”), entered into a revolver loan agreement with Equity Bank (the “Credit Facility”). Pursuant to the Credit Facility (a) the initial revolver commitment amount is $10.0 million; (b) the maximum revolver commitment amount is $15.0 million; (c) commencing on January 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is reduced by $150,000; (d) commencing on March 31, 2024, there are scheduled semiannual collateral borrowing base redeterminations each year on March 31 and September 30; (e) the final maturity date is December 29, 2026; (f) outstanding borrowings bear interest at a rate equal to the prime rate of interest plus 1.50%, and in no event lower than 8.50%; (g) a quarterly commitment fee is based on the unused portion of the commitments; and (h) Original Borrowers have the right to prepay loans under the Credit Facility at any time without a prepayment penalty.

The Credit Facility is guaranteed by the Company. Original Borrowers entered into a security agreement, pursuant to which the obligations under the Credit Facility are secured by liens on substantially all of the assets of Original Borrowers. Furthermore, the obligations under the Credit Facility are secured by a continuing, first priority mortgage lien, pledge of and security interest in not less than 80% of Original Borrowers’ producing oil, gas and other leasehold and mineral interests, including without limitation, those situated in the States of North Dakota and Montana.

On November 18, 2024, the Company entered into the First Amendment to the Credit Facility (the “First Amendment”). Pursuant to the First Amendment (a) the maximum revolver commitment amount is $20.0 million; and (b) commencing on December 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is reduced by $250,000.

On June 18, 2025, the Company entered into the Second Amendment to the Credit Facility (the “Second Amendment”). The Second Amendment added Empire Texas Development LLC as a third borrower to the Original Borrowers (collectively “Borrowers”) to the original Credit Facility and extends the obligation security by liens on substantially all of the assets of Empire Texas Development LLC.

The Credit Facility requires Borrowers to maintain (a) a current ratio of 1.0 to 1.0 or more and (b) a ratio of funded debt to EBITDAX (as defined in the revolver loan agreement), calculated quarterly and annually based on a trailing twelve-month basis, of no more than 3.50 to 1.00. At September 30, 2025, the Borrowers were in compliance with all required covenants under the Credit Facility.

Promissory Note – Related Party

On February 16, 2024, Empire issued a promissory note (the “February Note”) in the aggregate principal amount of $5.0 million to Energy Evolution with a maturity date of February 15, 2026, (the “February Maturity Date”) and accrues interest at the rate of 7% per annum beginning March 31, 2024, and on each subsequent quarter end date until the February Maturity Date paid in the form of cash or shares of common stock at the option of Energy Evolution. Any unpaid balance after the February Maturity Date accrues interest at the rate of 9% per annum. The February Note carries no penalties for prepayment without the consent of Energy Evolution if Empire provides written notification within at least five business days. At the discretion of Energy Evolution all or any portion of the outstanding principal amount of the February Note may be converted into shares of common stock at a conversion price of $6.25 per share, subject to customary adjustments, up to a maximum conversion shares amount of 800,000 (without giving effect to any interest that may be converted).

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Empire determined that an embedded conversion feature included in the February Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $1.3 million as of March 31, 2024, and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 15. Accordingly, Empire recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $0.7 million. The conversion option was exercised by Energy Evolution on May 24, 2024, in exchange for 800,000 shares of common stock of the Company under the terms of the February Note and the fair value of the derivative was revalued as of that date resulting in a loss of $1.7 million in 2024. All of the other embedded features of the February Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.

On June 17, 2025 (the “Original Issue Date”), the Company issued a promissory note (the “June Note”) in the aggregate principal amount of $4.0 million to Mr. Mulacek. As of June 17, 2025, Mr. Mulacek has advanced the Company $2.0 million under the June Note (the “Original Issue Date Advance”). From time to time, during the period beginning 45 days after the Original Issue Date and ending 90 days after the Original Issue Date, the Company may request in writing that Mr. Mulacek advance up to another $2.0 million to the Company, provided that no Event of Default (as defined in the June Note) has occurred or is continuing. Within five business days of receipt of such notice, Mr. Mulacek shall either advance the funds requested (an “Additional Advance”) or decline to make such additional advance. The June Note may be prepaid at any time or from time to time without the consent of Mr. Mulacek and without penalty or premium.

The June Note matures on June 17, 2027 (the “June Maturity Date”) and accrues interest at the rate of 5.5% per annum. After the Maturity Date, any principal balance of the June Note remaining unpaid accrues interest at the rate of 9% per annum. All accrued but unpaid interest is payable in cash on the June Maturity Date, except upon the occurrence of an Event of Default, in which case all accrued and unpaid interest shall immediately be due and payable. In the event that after the Original Issue Date, the Company closes a sale of its equity (an “Equity Raise”), the Company shall promptly, but in no event later than five business days after receipt of the proceeds from such Equity Raise, repay the lesser of (a) the Original Issue Date Advance (including any interest or fees thereon) or (b) the amount of the Equity Raise to Mr. Mulacek (an “Equity Raise Repayment”). In the event the Company receives proceeds from the sale of any of its equity after an Equity Raise Repayment and an Additional Advance, the Company shall use such proceeds to promptly repay such Additional Advance, and all accrued and unpaid interest thereon, to Mr. Mulacek. In August 2025, Empire completed an Equity Raise further described in Note 10 and repaid the outstanding June Note balance and all accrued and unpaid interest.

On September 24, 2025, Empire issued a convertible promissory note (the “September Note”) in the aggregate principal amount of $4.0 million to Mr. Mulacek with a maturity date of September 23, 2027, (the “September Maturity Date”) and accrues interest at the rate of 5.5% per annum with interest paid in cash on March 31, 2026, and on each semi-annual end date until the September Maturity Date. Mr. Mulacek advanced to the Company $2.0 million (“First Advance”) payable in full at the September Maturity Date and an additional $2.0 million may be advanced from time to time from March 23, 2026 and for a period of six months thereafter, provided no Event of Default further described in the September Note has occurred. Any unpaid balance after the September Maturity Date accrues interest at the rate of 9% per annum. The September Note carries no penalties for prepayment without the consent of Mr. Mulacek if Empire provides written notification within at least five business days. At the discretion of Mr. Mulacek all or any portion of the outstanding principal amount of the September Note may be converted into shares of common stock at a conversion price of $4.27 per share, subject to customary adjustments up to a maximum conversion shares amount of 936,768. On November 5, 2025, the September Note was amended to increase the conversion price for the First Advance to $4.32 per share for a maximum conversion shares amount of 462,962 and to provide that any further advances are at the discretion of Mr. Mulacek. The conversion price for each subsequent advance shall be determined per the terms of the amendment on November 5, 2025.

Empire determined that an embedded conversion feature included in the September Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $0.7 million as of September 30, 2025, and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 15. Accordingly, Empire recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $0.1 million. All of the other embedded features of the September Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.

As partial consideration for the September Note, the Company issued Mr. Mulacek a warrant certificate to purchase up to 281,030 common shares at a $4.27 exercise price which will expire on September 24, 2028. On November 5, 2025, the warrant certificate was amended to change the exercise price to $4.32 and the maximum purchase to 138,889 common shares. In the event Mr. Mulacek advances an additional $2.0 million under the terms of the September Note, an additional warrant certificate will be issued to purchase a number of common shares at an exercise price determined at the issuance of the additional warrant certificate per the terms of the amendment on November 5, 2025. In no event will Mr. Mulacek be entitled to receive an aggregate amount of the Company’s common stock in excess of 1,217,798 shares in connection with conversions under the September Note, exercises under the warrant certificate and/or exercises under one or more additional warrant certificates related to subsequent advances.

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Empire determined the warrants shall be classified as equity and accounted for as a discount to the outstanding September Note balance at its relative fair value and amortized over the life of the September Note. The amortization shall be recognized within interest expense in the unaudited interim condensed consolidated statements of operations. The estimated relative fair value of the warrants was approximately $0.4 million and determined using a Black-Scholes model with certain assumptions and inputs discussed in Note 15.

Note 9 – Leases

As a lessee, the Company leases its corporate office headquarters in Tulsa, Oklahoma, and one field office. The leases expire between 2025 and 2027. The corporate office has an option to renew for an additional five-year term. The option to renew the lease is generally not considered reasonably certain to be exercised. Therefore, the period covered by such optional period is not included in the determination of the term of the lease and the lease payments during these periods are similarly excluded from the calculation of right-of-use lease asset and lease liability balances.

The Company also leases vehicles primarily used in our field operations. These vehicle leases typically have a three-year life.

The Company recognizes right-of-use lease expense on a straight-line basis, except for certain variable expenses that are recognized when the variability is resolved, typically during the period in which they are paid. Variable right-of-use lease payments typically include charges for property taxes, insurance, and variable payments related to non-lease components, including common area maintenance.

Right-of-use lease expense was approximately $0.1 million for both the three months ended September 30, 2025 and 2024, and cash paid for right-of-use lease was approximately $0.1 million for the same respective periods. Right-of-use lease expense was approximately $0.4 million for both the nine months ended September 30, 2025 and 2024, respectively, and cash paid for right-of-use lease was approximately $0.3 million and $0.4 million for the same periods.

Supplemental balance sheet information related to the right-of-use leases is as follows:


	September 30,		December 31,
	2025		2024
Net operating lease asset (included in Other property and equipment, net)	$	428	$	604

Current portion of lease liability	$	330	$	400
Long-term lease liability		61		144
Total right-of-use lease liabilities	$	391	$	544

The weighted-average remaining term for Empire’s right-of-use leases is 1.16 years, and the weighted-average discount rate is 7.72% as of the third quarter of 2025.

Maturities of lease liabilities are as follows as of the date presented:


	September 30,
	2025
Year 1	$	346
Year 2		62
Year 3		—
Year 4		—
Year 5		—
Total lease payments		408
Less: imputed interest		(17)
Total lease obligation	$	391

Note 10 – Equity

Pursuant to the Company’s Amended and Restated Certificate of Incorporation (“Charter”), effective as of March 4, 2022, the total number of shares of all classes of stock that the Company has the authority to issue is 200,000,000, consisting of 190,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.

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Preferred Stock

Preferred stock may be issued from time to time in one or more series at the direction of the Company’s Board of Directors and the directors also have the ability to fix dividend rates and rights, liquidation preferences, voting rights, conversion rights, rights and terms of redemption and other rights, preferences, privileges and restrictions as determined by the Company’s Board of Directors, subject to certain limitations set forth in the Charter.

Series A Voting Preferred Stock

On March 8, 2022, the Company formalized the issuance of preferred stock as was required under the terms of the Company’s May 2021 financing agreements with Energy Evolution and issued six shares of Series A Voting Preferred Stock. The Series A Voting Preferred Stock was issued in connection with the strategic investment in the Company by Energy Evolution. For so long as the Series A Voting Preferred Stock is outstanding, the Company’s Board of Directors will consist of six directors. Three of the directors are designated as the Series A Directors and the three other directors (each, a “common director”) are elected by the holders of common stock and/or any preferred stock (other than the Series A Voting Preferred Stock) granted the right to vote on the common directors. Any Series A Director may be removed with or without cause but only by the affirmative vote of the holders of a majority of the Series A Voting Preferred Stock voting separately and as a single class. The holders of the Series A Voting Preferred Stock have the exclusive right, voting separately and as a single class, to vote on the election, removal and/or replacement of the Series A Directors. Holders of common stock or other preferred stock do not have the right to vote on the Series A Directors. The approval of the holders of the Series A Voting Preferred Stock, voting separately and as a single class, is required to authorize any resolution or other action to issue or modify the number, voting rights or any other rights, privileges, benefits, or characteristics of the Series A Voting Preferred Stock, including without limitation, any action to modify the number, structure and/or composition of the Company’s current Board of Directors.

The Series A Voting Preferred Stock is held by Phil Mulacek, Chairman of the Board of Directors of the Company and one of the principals of Energy Evolution, as Energy Evolution’s designee (the “Initial Holder”). The Series A Voting Preferred Stock may be transferred only to certain controlled affiliates of the Initial Holder (“Permitted Transferees”), and the voting rights of the Series A Voting Preferred Stock are contingent upon the Initial Holder and Permitted Transferees (collectively, the “Series A Holders”) holding together at least 3,000,000 shares of the Company’s outstanding common stock.

The Series A Voting Preferred Stock is not entitled to receive any dividends or distributions of cash or other property except in the event of any liquidation, dissolution or winding up of the Company’s affairs. In such event, before any amount is paid to the holders of the Company’s common stock but after any amount is paid to the holders of the Company’s senior securities, the holders of the Series A Voting Preferred Stock will be entitled to receive an amount per share equal to $1.00.

Except as discussed above or as otherwise set forth in the certificate of designation of the Series A Voting Preferred Stock, the holders of the Series A Voting Preferred Stock have no voting rights.

The Series A Voting Preferred Stock is not redeemable at the Company’s election or the election of any holder, except the Company may elect to redeem the Series A Voting Preferred Stock for $1.00 per share following satisfaction of its notice and cure requirements in the event that:

●

any or all shares of Series A Voting Preferred Stock are held by anyone other than the Initial Holder or a Permitted Transferee; or

●

the Series A Holders together hold less than 3,000,000 shares of the Company’s outstanding common stock.

The Series A Voting Preferred Stock is not convertible into common stock or any other security.

Common Stock

On August 27, 2021, the Company’s Board of Directors approved a one-for-four reverse stock split such that every holder of the Company’s common stock would receive one share of common stock for every four shares owned. The reverse stock split was effective as of 6:00 p.m. Eastern Time on March 7, 2022, immediately prior to the Company’s listing of its common stock on the NYSE American. All share amounts have retrospectively been stated at post-reverse split amounts and pricing.

The holders of shares of common stock are entitled to one vote per share for all matters on which common stockholders are authorized to vote on. Examples of matters that common stockholders are entitled to vote on include, but are not limited to, the election of three of the six directors and other common voting situations afforded to common stockholders.

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In April 2024, Empire completed a subscription rights offering (the “April Rights Offering”) which raised gross proceeds of $20.7 million. Empire distributed at no charge to holders of its common stock, as of the close of business on March 7, 2024 (the record date for the April Rights Offering), one subscription right for each share of common stock held. Each subscription right entitled the holder to purchase 0.161 shares of common stock at a subscription price of $5.00 per share per one whole share of common stock. The subscription rights were non-transferable and not listed for trading on any stock exchange or market.

On May 31, 2024, Empire issued Energy Evolution a warrant certificate granting them the right to purchase 128,800 shares of common stock of Empire at $5.00 per share. On June 28, 2024, Energy Evolution exercised the warrants and received 128,800 shares in exchange for approximately $0.6 million.

On July 31, 2024, Petroleum & Independent Exploration, LLC and related entities (“PIE”), a related party (see Note 13), Empire Texas, and Empire entered into a note repayment and loan termination agreement providing for the payment in full of the remaining outstanding amount of the approximate $1.1 million PIE loan As payment in full, Empire issued PIE 205,427 shares of common stock of Empire following the approval of a supplemental listing application by the NYSE American stock exchange in the third quarter of 2024.

In November 2024, Empire completed a subscription rights offering (the “November Rights Offering”) which raised gross proceeds of $10.0 million. Empire distributed at no charge to holders of its common stock, as of the close of business on September 30, 2024 (the record date for the November Rights Offering), one subscription right for each share of common stock held. Each subscription right entitled the holder to purchase 0.063 shares of common stock at a subscription price of $5.05 per share per one whole share of common stock. The subscription rights were non-transferable and not listed for trading on any stock exchange or market.

In August 2025, Empire completed a subscription rights offering (the “August Rights Offering”) which raised gross proceeds of $2.5 million. Empire distributed at no charge to holders of its common stock, as of the close of business on July 10, 2025 (the record date for the August Rights Offering), one non-transferable subscription right for each whole share of common stock owned by that stockholder on the record date. Each subscription right entitled a rights holder to purchase one unit at a subscription price equal to $0.07367 per unit, each unit consisting of 0.0139 shares of the Company’s common stock and one rights warrant to purchase 0.0136 shares of the Company’s common stock equal to $5.46 per whole share. No fractional shares of common stock are issued in the rights offering, including upon exercise of the warrants. The subscription rights were initially set to expire if they were not exercised or extended at the discretion of the Company by July 25, 2025 (the “Expiration Date”). The Expiration Date was subsequently extended to August 20, 2025 (the “Extension Date”). The warrants will expire 90 days after the Extension Date. As of September 30, 2025, the warrants had not been exercised.

On September 24, 2025 and as amended on November 5, 2025, Empire issued Mr. Mulacek a warrant certificate granting him the right to purchase up to 138,889 shares of common stock of Empire at $4.32 per share in conjunction with the September Note further described in Note 8.

Loss per Common Share


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Net Loss	$	(3,844)	$	(3,641)	$	(13,121)	$	(12,005)

Basic Weighted-Average Shares		34,043		31,619		33,906		29,055
Dilutive effect of potential common shares issuable (1)		—		—		—		—
Diluted Weighted-Average Shares		34,043		31,619		33,906		29,055
Loss per Common Share
Basic	$	(0.11)	$	(0.12)	$	(0.39)	$	(0.41)
Diluted	$	(0.11)	$	(0.12)	$	(0.39)	$	(0.41)

(1)

For the three and nine months ended September 30, 2025, the Company had approximately 0.5 million and 0.6 million, respectively, of stock options, warrants, outstanding restricted stock units, and convertible debt excluded from the diluted shares calculation as their inclusion would be antidilutive due to a net loss for the respective periods. For both the three and nine months ended September 30, 2024, the Company had approximately 1.0 million of stock options, warrants, outstanding restricted stock units, and convertible debt as their effect would have been anti-dilutive due to a net loss for the respective periods.

Note 11 – Stock-Based Compensation

Empire recognizes stock-based compensation expense associated with granted stock options and restricted stock units (“RSUs”). Empire accounts for forfeitures of equity-based incentive awards as they occur. Stock-based compensation expense related to time-based restricted stock units is based on the price of the common stock on the grant date and recognized as vesting occurs. For options, the fair value is determined using the Black-Scholes option valuation assumptions on dividend yield, expected annual volatility, risk-free interest rate and an expected useful life. Stock-based compensation is recorded with a corresponding increase in additional paid-in capital within the unaudited interim condensed consolidated balance sheets.

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The following summary reflects nonvested restricted stock unit activity and related information:


		Weighted-Average
	RSUs	Fair Value (1)
Outstanding, December 31, 2024	126,543	$	7.11
Granted	124,074		5.87
Vested	(133,725)		7.03
Forfeited	(21,000)		5.26
Outstanding, September 30, 2025	95,892	$	6.02

(1)

Shares are valued at the grant-date market price.

The following summary reflects stock option activity and related information:


		Weighted-Average
	Options (2)	Exercise Price (3)
Outstanding, December 31, 2024	1,885,850	$	4.75
Granted	21,000		4.55
Exercised	—		—
Cancelled	(36,000)		10.67
Outstanding, September 30, 2025 (1)	1,870,850	$	4.63
Exercisable, September 30, 2025 (1)	1,569,516	$	4.20

(1)

Stock options outstanding and exercisable had an aggregate intrinsic value of ($0.2) million and $0.5 million, respectively.

(2)

Stock options outstanding at September 30, 2025 had a weighted-average remaining contract term of 3.47 years.

(3)

Stock options outstanding at September 30, 2025 had an exercise price range of $1.32 to $12.36.

In November 2025, Mr. Mulacek exercised 589,100 stock options at an exercise price of $1.32.

Note 12 – Income Taxes

For all periods presented in the unaudited interim condensed consolidated statements of operations, Empire’s effective tax rate is 0%. Other than the full year of 2022, Empire has generated net operating losses since inception, which would normally reflect a tax benefit in the unaudited interim condensed consolidated statements of operations and a deferred tax asset on the unaudited interim condensed consolidated balance sheets. However, because of the current uncertainty as to Empire’s ability to achieve sustained profitability, a full valuation reserve has been established that offsets the amount of any tax benefit available for each period presented in the unaudited interim condensed consolidated statements of operations.

Tax Legislation

On July 4, 2025, the U.S. enacted H.R. 1, informally referred to as the One Big Beautiful Bill Act (“OBBBA”) and contains a broad range of changes to the U.S. federal income tax laws and makes permanent or modifies certain provisions of the Tax Cuts and Jobs Act. Among other provisions, the OBBBA includes permanently restoring an EBITDA-based business interest deduction limitation, 100% bonus depreciation for certain property and immediate expensing for certain domestic research and experimental expenditures. The impacts of these changes are reflected within income tax provision (benefit) on the unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2025. While we continue to monitor further legislative developments and administrative guidance, we do not expect the OBBBA to have a material impact on our consolidated financial statements for the year ending December 31, 2025.

Note 13 – Related Party Transactions

Energy Evolution is a related party of the Company as it beneficially owns approximately 31.3% of the Company’s outstanding shares of common stock as of September 30, 2025. In October 2021, a member of Energy Evolution and a board member of Energy Evolution were appointed to the Company’s Board of Directors. The board member of Energy Evolution separately beneficially owns approximately 22.6% of the Company’s outstanding shares of common stock as of September 30, 2025, and is also a majority owner of PIE.

The Company had a JDA with PIE to perform recompletion or workover on specified mutually agreed upon wells. In the third quarter of 2024, Empire issued PIE 205,427 shares of common stock of Empire as payment in full for this outstanding note balance of $1.1 million (see Note 10).

On February 16, 2024, Empire issued the February Note to Energy Evolution. Energy Evolution advanced Empire $5.0 million under the February Note in the first quarter of 2024. On May 24, 2024, Energy Evolution elected to convert the February Note to shares of common stock of Empire and received 800,000 shares under the terms of the February Note (see Note 8).

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On April 9, 2024, Empire acquired 60% of certain New Mexico interests from Energy Evolution. As consideration, Empire issued Energy Evolution 600,000 shares of common stock of Empire based on an agreed upon price of $5.00 per share for an aggregate agreed upon value of $3.0 million. On August 8, 2024, Empire successfully extended its option to purchase the remaining interest with the issuance of 16,800 shares of common stock to Energy Evolution, and as such, Empire has the right to acquire the remaining interest for an exercise price of $2.0 million. On May 1, 2025, the Company amended its ability to further extend the Purchase Option to allow for payment for such extension to be made in cash in lieu of the Option Shares due and payable on or before September 30, 2025. The Company made a cash payment to Energy Evolution on September 30, 2025 to extend the Purchase Option for an additional year.

On June 28, 2024, Energy Evolution exercised its warrants of Empire and received 128,800 shares in exchange for approximately $0.6 million (see Note 10).

On June 17, 2025, the Company issued the June Note to Mr. Mulacek. Mr. Mulacek advanced Empire $2.0 million under the June Note in the second quarter of 2025 (see Note 8). In August 2025, Empire completed an Equity Raise further described in Note 10 and repaid the outstanding June Note balance and all accrued and unpaid interest.

On September 24, 2025, Empire issued the September Note to Mr. Mulacek. Mr. Mulacek advanced Empire $2.0 million under the September Note in the third quarter of 2025 (see Note 8).

Accounts receivable on the unaudited interim condensed consolidated balance sheet includes approximately $0.7 million receivables from Energy Evolution. Accrued expenses on the unaudited interim condensed consolidated balance sheet include approximately $0.1 million of revenue payable to Energy Evolution.

Note 14 – Commitments and Contingencies

From time to time, Empire is subject to various legal proceedings arising in the ordinary course of business, including proceedings for which Empire may not have insurance coverage. While many of these matters involve inherent uncertainty, as of the date hereof, Empire does not currently believe that any such legal proceedings will have a material adverse effect on Empire’s business, financial position, results of operations or liquidity.

Empire is subject to extensive federal, state, and local environmental laws and regulations. These laws, among other things, regulate the discharge of materials into the environment and may require Empire to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Management believes no materially significant liabilities of this nature existed as of the balance sheet date.

Agreed Compliance Order

In January 2024, the Company deposited $1.0 million into an escrow account in accordance with an Agreed Compliance Order (“ACO”) with the New Mexico Oil Conservation Division (“NMOCD”) for compliance work on certain inactive wells in New Mexico. Under the terms of the ACO, the escrow funds will be returned to the Company at a rate of $0.01 million for each well as the compliance work is completed. As of June 30, 2024, all work had been completed, and the Company expects to receive the remaining outstanding escrow amount of $0.2 million in 2025.

New Mexico Trespass

In December 2023, the Company initiated a legal action in the Fifth Judicial District Court, Lea County, New Mexico, against a saltwater company for trespassing and illegal wastewater dumping within one of the New Mexico water flood units. Certain of these matters implicate regulatory rulings and actions from either the NMOCD or the New Mexico Oil Conservation Commission. Management continues to evaluate the potential outcomes; however, it cannot be determined at this time, and no amount has been recognized due to the uncertainty of any conclusions that may arise as a result of such action.

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Note 15 – Fair Value Measurements

The following table provides the carrying value and fair value measurement information for certain financial assets and liabilities. The carrying values of cash, accounts receivable, inventory, accounts payable, accrued expenses, lease liabilities, notes payables and equipment and vehicle notes included in the accompanying unaudited interim consolidated balance sheets approximated fair value at September 30, 2025, and December 31, 2024, as applicable, and generally represent Level 2 fair values due to their short-term nature. Therefore, such financial assets and liabilities are not presented in the following table:


					Fair Value Measurements Using:
	Carrying		Total Fair		Level 1		Level 2		Level 3
	Amount		Value		Inputs		Inputs		Inputs
September 30, 2025 liabilities
Debt - Credit Facility	$	14,089	$	14,089	$	—	$	14,089	$	—
Debt - Convertible Promissory Note - Related Party, excluding debt discount		1,158		1,442		—		—		1,442
Derivative Instrument - Embedded Derivative		745		745		—		—		745

December 31, 2024 liabilities
Debt - Credit Facility	$	11,089	$	11,089	$	—	$	11,089	$	—
Debt - Convertible Promissory Note - Related Party, excluding debt discount		—		—		—		—		—
Derivative Instrument - Embedded Derivative		—		—		—		—		—

The following methods and assumptions were used to estimate the fair values in the table above and other fair value measurements.

Level 2

Derivatives - Derivative financial instruments are carried at fair value and measured on a recurring basis. The Company’s commodity price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves.

The fair values of derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments in liability positions include measures of the Company’s nonperformance risk.

Level 3

Impairment of 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 acquisitions, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

Asset Retirement Obligation – The fair value of AROs is included in proved oil and natural gas properties with a corresponding liability. 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.

Empire applies the provisions of fair value measurement on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties and asset retirement obligations. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary. No triggering events that require assessment of such items were observed during the nine months ended September 30, 2025 and 2024.

Warrants – The fair value of the warrants issued in connection with the September Note further described in Note 8 was measured using a Black-Scholes option pricing model. Key inputs for the Black-Scholes model include the stock price, exercise price, expected term, risk-free rate, volatility, and dividend yield. We consider this a Level 3 measurement within the fair value hierarchy as estimated volatility is generally unobservable and requires estimation.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis – In the determination of the fair value of the February Note and the September Note discussed further in Note 8 including the embedded conversion feature, Empire used a binomial lattice valuation model to value Level 3 derivative liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as Empire’s stock price, contractual terms of the respective notes, and unobservable inputs classified as Level 3 including risk-free rate and expected volatility. As of the conversion option exercise date of May 24, 2024 related to the February Note, these unobservable inputs were 5.0% and 46.9%, respectively. Due to the subjective nature of these inputs, the fair value measurement could differ materially under alternative assumptions.

Note 16 – Segment Reporting

The Company’s operations are managed and reported to its CEO, the Company’s CODM, on a consolidated basis. The CEO uses consolidated net loss in assessing performance of capital spend projects to allocate the appropriate resources to drive efficiencies and develop growth strategies. Under the organizational and reporting structure, the Company has one operating segment and one reportable segment.

The CODM is provided with the following significant segment expenses within lease operating expense on the unaudited interim condensed consolidated statements of operations:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Production costs	$	5,371	$	4,961	$	16,662	$	16,330
Workover activity		347		1,380		1,149		4,332
Plugging and abandonment activity		17		393		77		1,002
Total Lease operating expense	$	5,735	$	6,734	$	17,888	$	21,664

Other segment items within consolidated net loss are all separately disclosed on the unaudited interim condensed consolidated statements of operations. Segment asset information is not presented to and used by the CODM to allocate resources, assess performance or make strategic decisions.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 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.

Overview

Our primary business is the optimization and development of oil and gas interests. We have incurred losses from operations in 2025 and 2024. There is no assurance that we will be profitable or obtain the funds necessary to finance our future operations.

We seek to increase shareholder value by growing reserves, production, revenues, and cash flow from operating activities by executing our mission to use highly skilled personnel to thoughtfully and expertly spend capital to realize reserves on producing properties as well as further develop fields.

Management places emphasis on operating cash flow in managing our business, as operating cash flow considers the cash expenses incurred during the period and excludes non-cash expenditures not related directly to our operations.

Concentration

The Company’s producing properties and oil and natural gas reserves are all located in Louisiana, New Mexico, North Dakota, Montana, and Texas. Because of the concentration, the Company is exposed to the impact of regional supply and demand factors, processing or transportation capacity constraints, severe weather events, water shortages, and government regulations specific to the geographic area. The Company also sells a large portion of its oil and natural gas production to a few customers, which increases the risk of temporary sales interruption or a lower price for production if one of these purchasers were lost.

Inflation

The effect of inflation on the Company has generally been to increase its cost of operations, general and administrative costs and direct costs associated with oil and natural gas production.

Properties

We are an independent operator in four geographic areas in the United States. For our operated properties, we manage and influence production using a combination of experienced field personnel and third-party service providers to execute our mission. Our producing properties have reasonably predictable production profiles and cash flows, subject to commodity price and cost fluctuations. As is common in the industry in which we operate, we selectively participate in drilling and developmental activities in non-operated properties. Decisions to participate in non-operated properties are made after technical and economic analysis of the projects which also considers the operating expertise and historical track record of the operators.

Seasonality of Business

Weather conditions often affect the demand for, and prices of, natural gas and can also delay oil and natural gas production. Demand for natural gas is traditionally higher in the winter, resulting in higher natural gas prices during the first and fourth quarters. Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of the results realized on an annual basis.

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Business Strategy

Our business strategy is to obtain long-term growth in reserves and cash flow on a cost-effective basis. Management regularly evaluates potential acquisitions of properties that would enhance current core areas of operation.

Critical Accounting Estimates

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.

LIQUIDITY AND CAPITAL RESOURCES

General

Empire’s primary sources of short-term liquidity are cash and cash equivalents, net cash provided by operating activities, our Credit Facility and issuance of debt or equity securities. Empire’s short- and long-term liquidity requirements consist primarily of capital expenditures, acquisitions of oil and natural gas properties, payments of contractual obligations, and working capital obligations. Funding for these requirements may be provided by any combination of Empire’s sources of liquidity. Although Empire expects that its sources of funding will be adequate to fund its liquidity requirements, no assurance can be given that such funding sources will be adequate to meet Empire’s future needs.

Liquidity

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.

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.

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Working Capital

Working capital is presented in the table below. The change of approximately $0.3 million was primarily driven by a higher cash balance substantially offset by an increase in accrued expenses.


	September 30,		December 31,
(in thousands)	2025		2024
Current Assets	$	14,686	$	12,351
Current Liabilities		23,314		21,270
Working Capital	$	(8,628)	$	(8,919)

Cash Flows


	For the Nine Months Ended September 30,
(in thousands)	2025		2024		Change
Cash flows provided by (used in):
Operating activities	$	(1,195)	$	14,917	$	(16,112)
Investing activities		(3,384)		(49,274)		45,890
Financing activities		6,929		29,714		(22,785)

Operating Activities

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.

Investing Activities

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.

Financing Activities

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).

Capital Resources

Capital Expenditures

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.

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Production and Operating Data

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.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Production and Operating Data:
Net Production Volumes:
Oil (Bbl)		144,098		144,674		399,587		435,717
Natural gas (Mcf)		207,677		255,195		644,678		708,258
Natural gas liquids (Bbl)		41,938		39,137		112,482		113,534
Total (Boe)		220,648		226,344		619,515		667,294

Average Price per Unit:
Oil (1)	$	61.00	$	71.48	$	62.17	$	73.60
Natural gas	$	0.94	$	0.04	$	1.50	$	0.38
Natural gas liquids	$	9.25	$	13.85	$	11.59	$	13.87
Total (Boe)	$	42.48	$	48.12	$	43.76	$	50.82

Operating Costs and Expenses per Boe:
Lease operating expense (excluding workovers)	$	24.34	$	23.62	$	26.89	$	24.47
Workovers	$	1.65	$	6.13	$	1.98	$	7.99
Total Lease operating expense	$	25.99	$	29.75	$	28.87	$	32.46
Production and ad valorem taxes	$	3.42	$	4.35	$	3.61	$	4.32
Depreciation, depletion, amortization and accretion	$	15.08	$	13.72	$	14.83	$	12.36
General & administrative (excluding stock-based compensation)	$	13.06	$	16.06	$	14.50	$	13.29
Stock-based compensation	$	1.08	$	1.48	$	2.03	$	2.45
Total General & administrative	$	14.14	$	17.54	$	16.53	$	15.74

(1)	Excludes the effect of net cash receipts from (payments on) derivatives.

Bbl – One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to oil, condensate, or natural gas liquids.

Mcf – One thousand cubic feet of natural gas.

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.

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Three Months Ended September 30, 2025 and 2024

Results of Operations

The following table reflects Empire’s summary operating information for the three 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.


	For the Three Months Ended September 30,						Percent
(in thousands)	2025		2024		Variance		Change
Oil Sales	$	8,790	$	10,341	$	(1,551)	(15)	%
Gas Sales		196		9		187	NM	%
NGL Sales		388		542		(154)	(28)	%
Total Product Revenues		9,374		10,892

Lease Operating Expense		5,735		6,734		(999)	(15)	%
Production and Ad Valorem Taxes		755		984		(229)	(23)	%
Depreciation, Depletion, Amortization & Accretion		3,328		3,106		222	7	%
General and Administrative (excluding stock-based compensation)		2,881		3,636		(755)	(21)	%
Stock-Based Compensation		238		335		(97)	(29)	%
Cash-Based Interest Expense		378		227		151	67	%
Non-Cash Interest Expense (Income)		10		(31)		41	(132)	%

Operating Loss		(3,549)		(3,418)		(131)	4	%
Net Loss		(3,844)		(3,641)		(203)	6	%

NM: A percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change that is greater than 200.

Revenues

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.

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.

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.

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.

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.

Lease Operating Expense and Production Taxes

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.

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

Depreciation, Depletion, Amortization and Accretion

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.

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General and Administrative Expense (excluding stock-based compensation)

General and administrative expense, excluding stock-based compensation, decreased for the three months ended September 30, 2025, compared to the same period in 2024 primarily due to timing of board of director compensation and franchise taxes.

Stock-based Compensation

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.

Interest Expense

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.

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Nine Months Ended September 30, 2025 and 2024

Results of Operations

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.


	For the Nine Months Ended September 30,						Percent
(in thousands)	2025		2024		Variance		Change
Oil Sales	$	24,844	$	32,070	$	(7,226)	(23)	%
Gas Sales		965		270		695	NM	%
NGL Sales		1,304		1,575		(271)	(17)	%
Total Product Revenues		27,113		33,915

Lease Operating Expense		17,888		21,664		(3,776)	(17)	%
Production and Ad Valorem Taxes		2,235		2,883		(648)	(22)	%
Depreciation, Depletion, Amortization & Accretion		9,190		8,250		940	11	%
General and Administrative (excluding stock-based compensation)		8,984		8,869		115	1	%
Stock-Based Compensation		1,255		1,637		(382)	(23)	%
Cash-Based Interest Expense		970		664		306	46	%
Non-Cash Interest Expense		48		582		(534)	(92)	%

Operating Loss		(12,408)		(9,741)		(2,667)	27	%
Net Loss		(13,121)		(12,005)		(1,116)	9	%

NM: A percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change that is greater than 200.

Revenues

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.

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.

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.

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.

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%.

Lease Operating Expense and Production Taxes

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.

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.

Depreciation, Depletion, Amortization and Accretion

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.

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General and Administrative Expense (excluding stock-based compensation)

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.

Stock-based Compensation

Stock-based compensation decreased period over period due to a lower number of awards in 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.

Interest Expense

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.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”) and are not required to provide this information.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and participation of the Company’s Principal Executive Officer/Principal Financial Officer, along with our management, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Company’s Principal Executive Officer/Principal Financial Officer concluded that the disclosure controls and procedures were effective, as of the end of the period covered by this report, in ensuring the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (Principal Executive Officer/Principal Financial Officer), to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

While we continue to implement design enhancements to our internal control procedures, we believe there were no changes to our internal control over financial reporting during the three months ended September 30, 2025, which were identified in connection with the evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The Company’s disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their desired objectives. Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect all errors or misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 14 of the unaudited interim condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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

Empire was not informed by any of its directors or Section 16 officers of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K, during the third quarter of 2025.

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Item 6. Exhibits


4.1		Common Share Warrant Certificate No. Mulacek Note 2025 dated September 24, 2025 (incorporated herein by reference to Exhibit 4 to the Company’s Form 8-K dated September 24, 2025, which was filed on September 26, 2025).

10.1		Empire Petroleum Corporation Promissory Note due September 23, 2027 in the aggregate principal amount of $4.0 million in favor of Phil E. Mulacek (incorporated herein by reference to Exhibit 10 to the Company’s Form 8-K dated September 24, 2025, which was filed on September 26, 2025).

10.2		Letter Agreement dated November 5, 2025 between the Company and Phil E. Mulacek (incorporated herein by reference to Exhibit 10 to the Company’s Form 8-K dated November 5, 2025, which was filed on November 7, 2025).

31.1		Rule 13a - 14 (a)/15(d) - 14(a) Certification of Michael R. Morrisett, Chief Executive Officer (submitted herewith).

31.2		Rule 13a - 14 (a)/15(d) - 14(a) Certification of Michael R. Morrisett, Principal Financial Officer (submitted herewith).

32.1		Section 1350 Certification of Michael R. Morrisett, Chief Executive Officer (submitted herewith).

32.2		Section 1350 Certification of Michael R. Morrisett, Principal Financial Officer (submitted herewith).

EMPIRE PETROLEUM CORP 10-Q