What changed in this filing

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Item 1. Financial Statements

2021-11-15 compared with 2021-08-23 · 454 added, 503 removed, 417 unchanged (70% of the section changed)

1 unchanged sentence

PETROLEUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

Accounts Receivable

Gain on Oil and Natural Gas Derivatives, Current

Oil Inventory

1 unchanged sentence

Property and equipment:

Oil and Natural Gas Properties, Successful Efforts

Natural Gas Properties, Successful Efforts

Accumulated Depreciation, Depletion and Impairment

2 unchanged sentences

Oil and natural gas properties, successful efforts, net

Other Property and Equipment, net

Total Property and Equipment, net

Investment in Related Party

Sinking Fund (Note 7)

LIABILITIES AND STOCKHOLDERS' DEFICIT

Property and Equipment, Net

Gain on Oil and Natural Gas Derivatives, Noncurrent

Fund (Note 5)

AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:

Accounts Payable

Accrued Expenses

Unrealized Loss on Oil and Natural Gas Derivatives

Embedded Conversion Option

Contingent Payment (see Note 6)

Current Portion of Lease Liability

Notes Payable to Related Party, net of discount

Current Portion of Long-term Notes Payable, net of discount

Loss on Oil and Natural Gas Derivatives

Portion of Lease Liability

Portion of Long-term Notes Payable, Net of Discount

Total Current Liabilities

Long-Term Notes Payable

Long Term Lease Liability

Asset Retirement Obligations

Notes Payable

Notes Payable to Related Party, Net of Discount

Conversion Option

Lease Liability

Retirement Obligations

Total Liabilities

Commitments and Contingencies (Note 16)

Stockholders' Deficit:

Common Stock - $ .001 Par Value 150,000,000 Shares Authorized,

Commitments and Contingencies

Stockholders' Equity (Deficit):

Stock - $ .001 Par Value 150,000,000 Shares Authorized,

and 24,892,277 Shares Issued and Outstanding, Respectively

Common Stock Subscribed

Additional Paid-in Capital

Accumulated Deficit

( 46,887,523 )

Stock Subscribed

Paid-in Capital

( 50,613,748 )

Total Stockholders' Deficit

( 40,618,381 )

Stockholders' Equity (Deficit)

( 18,441,038 )

Total Liabilities and Stockholders' Deficit

See accompanying notes to unaudited condensed consolidated

financial statements

PETROLEUM CORPORATION

Liabilities and Stockholders' Equity (Deficit)

See accompanying notes to unaudited condensed

consolidated financial statements

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Natural Gas Sales

1 unchanged sentence

Other Revenue

Net Realized and Unrealized Gain

(Loss) on Derivatives

Net Realized and Unrealized Gain (Loss) on Derivatives

Total Revenue

6 unchanged sentences

Total Cost and Expenses

Operating Loss

Operating Income (Loss)

( 1,641,485 )

( 3,914,327 )

Other Income and (Expense):

Convertible Debt Modification Inducement Expense (Note 9)

( 2,276,813 )

Other Income and (Expense):

Unrealized Gain on Embedded Conversion Option (Note 9)

Gain on Sale of Assets

Other Expense

Interest Expense

8 unchanged sentences

Basic & Diluted

accompanying notes to unaudited condensed consolidated financial statements

PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Six Months Ended September 30, 2021 and 2020

See accompanying notes to unaudited condensed consolidated

financial statements

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS' EQUITY (DEFICIT)

For the nine months ended September 30, 2021 and

Balances, December 31, 2020

17 unchanged sentences

( 6,203,932 )

( 3,726,225 )

Stock Options Exercised

Warrants Exercised

Shares and Warrants Issued with Amended Secured Convertible Notes

Unsecured Convertible Note Conversion

Shares Issued for Convertible Note Interest

Balances, September 30, 2021

( 50,613,748 )

See accompanying notes to unaudited condensed consolidated

financial statements

Balances, December 31, 2019

11 unchanged sentences

$ ( 5,815,075 )

accompanying notes to unaudited condensed consolidated financial statements

PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June

( 1,641,372 )

Shares and Warrants Issued

Balances, September 30, 2020

$ ( 26,809,490 )

$ ( 6,931,447 )

See accompanying

notes to unaudited condensed consolidated financial statements

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

Nine Months Ended September 30,

Cash Flows From Operating Activities:

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Stock Compensation Expense

Stock Issued for Interest Expense Payment

Right to Buy Issuance Costs

Unrealized Loss on Embedded Conversion Option

Unrealized Gain on Embedded Conversion Option

Amortization of Discount on Convertible Notes

Convertible Debt Modification Inducement Expense

Amortization of Loan Issue Costs

3 unchanged sentences

Accretion of Asset Retirement Obligation

Cash paid to Ovintiv (see Note 4)

Loss relating to Ovintiv Purchase Deposit (see Note

Forgiveness of Payroll Protection Plan loan

Cash paid to Ovintiv

Loss relating to Ovintiv Purchase Deposit

Forgiveness of Paycheck Protection Program Loan

Change in Operating Assets and Liabilities:

1 unchanged sentence

( 5,566,084 )

Unrealized Loss (Gain) on Oil and Natural Gas Derivative

( 1,062,775 )

Unrealized Gain on Oil and Natural Gas Derivative Instruments

Accounts Payable

Accrued Expenses

Net Cash Used In Operating Activities

( 2,511,351 )

Net Cash Provided By (Used In) Operating Activities

( 1,970,126 )

3 unchanged sentences

Purchase of Other Fixed Assets

Investment in Related Party

( 1,250,000 )

Sinking Fund Deposit

( 4,330,000 )

Proceeds From Sale of Oil and

Natural Gas Properties

Net Cash Provided by (Used in) Investing

Proceeds From Sale of Oil and Natural Gas Properties

Net Cash Provided by (Used in) Investing Activities

( 22,708,350 )

3 unchanged sentences

( 5,546,738 )

Proceeds from Stock and Warrant

Proceeds from Stock and Warrant Issuance

Net Cash Provided by Financing Activities

2 unchanged sentences

Cash - End of Period

accompanying notes to unaudited condensed consolidated financial statements

See accompanying notes to unaudited condensed consolidated

financial statements

PETROLEUM CORPORATION

TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OF PRESENTATION AND GOING CONCERN

OF PRESENTATION

accompanying unaudited condensed consolidated financial statements of Empire Petroleum Corporation ("Empire" or the "Company")

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(the "SEC") on March 31, 2021.

Company has incurred significant losses in recent years.

The continuation of the Company as a going concern is dependent upon the ability

of the Company to attain future profitable operations and/or additional debt or equity financing until profitable operations are achieved.

The ultimate recoverability of the Company's investment in oil and natural gas interests is dependent upon the existence and discovery

of economically recoverable oil and natural gas reserves, the ability of the Company to obtain necessary financing to further develop

the interests, and the ability of the Company to attain future profitable production.

of June 30, 2021, the Company had $ 1,016,877

of cash and working capital deficit of $ 13,177,298.

The Company has proved reserves which have been

acquired within the last two years.

The Company plans to continue to look for oil and natural gas investments and will use a combination

of debt and equity financing to fund potential acquisitions.

The Company expects to also incur costs related to evaluating and acquiring

oil and natural gas acquisitions for the foreseeable future.

It is expected that management will attempt to raise additional capital

for future investment and working capital opportunities.

there can be no assurances the Company will be able to refinance or restructure its existing indebtedness, raise sufficient capital to

fund its strategic development plans, and meet its various capital needs.

As a result of these uncertainties, management has concluded

there is substantial doubt regarding the Company’s ability to continue as a going concern.

financial statements have been prepared on the basis of United States generally accepted accounting principles applicable to a company

with continuing operations, which assume that the Company will continue in operation for the foreseeable future and will be able to realize

its assets and discharge its obligations in the normal course of operations.

Management believes the going concern assumption to be appropriate

for these financial statements.

If the going concern assumption were not appropriate for these financial statements, then adjustments

might be necessary to adjust the carrying value of assets and liabilities and reported expenses.

Company’s impairment assessment of proved and unproved mineral properties is based on several factors including oil and gas spot

market prices and estimated futures prices that existed at June 30, 2021.

In 2020, crude oil

prices in both the spot market and futures market experienced significant volatility.

For the year ended December 31, 2020 the Company

recorded an impairment expense of $ 8,671,303 as a result of the decline in oil prices.

Further, the effect of lower crude oil prices

on the Company’s future financial position or results of operations is not currently determinable due to broader economic and industry

uncertainties, including the impact to the operators and other working interest owners of the properties in which the Company owns mineral

the event crude oil or natural gas prices decline significantly, there is the risk that, among other things:

Company’s revenues, cash flows and profitability may decline substantially, which could

also indirectly impact expected production by reducing the amount of funds available to acquire

future mineral interests;

relating to the Company’s proved properties may become uneconomic to produce resulting

in impairment of proved properties;

and other working interest owners are unable to execute their drilling and exploration programs

resulting in lower production or inability to prove reserves on unproved properties

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

early March 2020 there was a global outbreak of COVID-19 which has continued and resulted in changes in global supply and demand of certain

mineral and energy products.

These changes, including the magnitude and length of the economic downturn and any potential resulting direct

and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company’s

acquisition and project development activities, and cash flows and liquidity.

of June 30, 2021, the Company had twenty nine employees.

No independent Board members received compensation from the Company in the

first six months of 2020;

of September 30, 2021, the Company had thirty-three employees.

No independent Board members received compensation from the Company in

the first nine months of 2020;

in 2021 independent Board members were compensated $ 116,000

was accrued but unpaid as of June 30, 2021.

For the six months ended June 30, 2021, the Company paid its officers, Mr.

Morrisett and

Pritchard, $ 227,000

each for services rendered.

For the six months ended June 30, 2020, the Company paid Mr.

Morrisett and Mr.

Pritchard $ 116,000

each for services rendered excluding the value of options awarded.

through September 30, 2021.

Independent directors

that remain seated at December 31, 2021 will receive 120,000 shares each of common stock, prorated for the portion of the year served.

Beginning in calendar year 2022, Mssrs.

Morrisett and Pritchard will each receive annual awards of 100,000 shares of common stock pursuant

to their employment agreements .

OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

wholly owned subsidiaries, Empire Louisiana, LLC ("Empire Louisiana"), Empire North Dakota, LLC ("Empire North Dakota"),

Empire New Mexico, LLC (“Empire New Mexico”), Empire ND Acquisitions, LLC (“Empire ND Acquisitions”), Empire

Texas, LLC (“Empire Texas”), and Pardus Oil & Gas Operating, LP (“Pardus”).

All material intercompany balances

and transactions have been eliminated.

Empire New Mexico, LLC (“Empire New Mexico”) d/b/a Green Tree New Mexico (“Green Tree”), Empire ND Acquisitions,

LLC (“Empire ND Acquisitions”), Empire Texas, LLC (“Empire Texas”), and Pardus Oil & Gas Operating, LP (“Pardus”).

All material intercompany balances and transactions have been eliminated.

of estimates in the preparation of financial statements.

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with ASC 815, Derivatives and Hedging (“ASC 815”).

ASC 815 requires a reporting entity to bifurcate conversion options embedded in

convertible debt and to account for them as a free standing derivative when the embedded feature is not clearly and closely related to

the host instrument and meets the definition of a derivative and does not qualify for the scope exception from derivative accounting.

ASC 815 requires a reporting entity to bifurcate conversion options embedded

in convertible debt and to account for them as a free-standing derivative when the embedded feature is not clearly and closely related

to the host instrument and meets the definition of a derivative and does not qualify for the scope exception from derivative accounting.

The Company reviews the terms of convertible debt issued to determine whether there are embedded features, including embedded conversion

1 unchanged sentence

In circumstances where the host instrument

contains more than one embedded derivative, including the conversion option, that is required to be bifurcated, the derivative instruments

contains more than one embedded derivative, including the conversion option, which is required to be bifurcated, the derivative instruments

are accounted for as a single, compound derivative instrument.

8 unchanged sentences

accounting are accounted for under other models as required by ASC 470-20, Debt with Conversion and Other Options.

recognition .

The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them aggregated

12 unchanged sentences

Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production.

At June 30, 2021, the Company had receivables related to contracts with customers of approximately $ 2,800,000 and joint interest billings

of approximately $ 800,000 .

At September 30, 2021, the Company had receivables related to contracts with customers of approximately $ 3,900,000 and joint interest

billings of approximately $ 2,400,000 .

value measurements.

25 unchanged sentences

judgment and estimates made by management and represent Level 3 inputs.

in related party – The value of the investment in related party is based on the cost of the investment due to its nature.

instruments and other- The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent

to the carrying value due to their short-term nature.

instruments and other – The fair values determined for accounts receivable, accrued expenses and other current liabilities were

equivalent to the carrying value due to their short-term nature.

Party Transactions.

2 unchanged sentences

FASB ASC 850, Related Party Disclosures (“FASB ASC 850”) requires that

transactions with related parties that would make a difference in decision making shall be disclosed so that users of the financial statements

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.

9 unchanged sentences

prevented from fully pursuing its own separate interests.

IN RELATED PARTY

with the acquisition and financing of the XTO properties (See Notes 7 and 11), the Company made an investment in Energy Evolution Fund

LP, an affiliate of Energy Evolution Ltd, a related party, in the amount of $ 1,250,000 .

The Energy Evolution Fund, LP is a hedge fund

focused on global petroleum and sustainable energy.

The investment in related party is accounted for as an investment in an equity security

and recorded at historical cost.

The investment was mutually terminated on August 19, 2021 (See Note 17).

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

Company’s revenues, cash flows and profitability may decline substantially, which could

also indirectly impact expected production by reducing the amount of funds available to acquire

future mineral interests;

relating to the Company’s proved properties may become uneconomic to produce resulting

in impairment of proved properties;

and other working interest owners are unable to execute their drilling and exploration programs

resulting in lower production or inability to prove reserves on unproved properties

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

early March 2020 there was a global outbreak of COVID-19 which has continued and resulted in changes in global supply and demand of certain

mineral and energy products.

These changes, including the magnitude and length of the economic downturn and any potential resulting direct

and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company’s

acquisition and project development activities, and cash flows and liquidity.

Company has a concentration of purchasers;

however, should any of these relationships be extinguished, management believes that the Company

could easily replace those purchasers with others in the areas in which the Company operates.

INVESTMENT IN RELATED PARTY

with the acquisition and financing of the XTO properties (See Notes 5 and 9), the Company made an investment in Energy Evolution

Fund LP, an affiliate of Energy Evolution Ltd, a related party, in the amount of $ 1,250,000 .

The Energy Evolution Fund LP is a hedge fund focused on global petroleum and sustainable energy and is the lender under the

Company’s Senior Secured Convertible Note Agreement, as well as the lender of a portion of the Unsecured Convertible Notes

issued by the Company (See Note 9).

The investment was mutually terminated on August

The proceeds from the termination were applied to the outstanding balance

of the Senior Secured Convertible Note Payable.

AND EQUIPMENT

2 unchanged sentences

The Company recognized a gain on the transactions of $ 1,143,760 .

April 6, 2020 the Company purchased oil and natural gas properties in Texas (see Note 6).

April 6, 2020 the Company purchased oil and natural gas properties in Texas.

May 2021 the Company purchased oil and natural gas properties in New Mexico (See Note 5).

3 unchanged sentences

exceeded the expected undiscounted future net cash flows for certain leases, resulting in impairment charges against earnings of $ 800,452

for the six months ended June 30, 2020.

The Company did not recognize an impairment of proved oil and natural gas properties during the

six months ended June 30, 2021.

aggregate capitalized costs of oil and natural gas properties as of June 30, 2021, are as follows:

for the nine months ended September 30, 2020.

The Company did not recognize an impairment of proved oil and natural gas properties during

the nine months ended September 30, 2021.

aggregate capitalized costs of oil and natural gas properties as of September 30, 2021, are as follows:

Proved producing wells

6 unchanged sentences

( 17,081,053 )

property and equipment consists of operating lease asset (See Note 11), vehicles, office furniture and equipment.

property and equipment consists of operating lease assets (See Note 10), vehicles, office furniture and equipment.

Other property and equipment, at cost

1 unchanged sentence

Oher property and equipment, net

OVINTIV OIL AND NATURAL GAS PROPERTIES

March 3, 2020 the Company entered into a Purchase and Sale Agreement (“the Ovintiv Agreement”) with Ovintiv USA, Inc.

several related companies to purchase certain oil and natural gas properties in Montana and North Dakota.

The purchase price was $ 8,500,000 ,

subject to adjustments with an effective date of January 1, 2020 and a closing date of April 30, 2020 .

Company made an $ 850,000 deposit relating to the purchase.

Due to the COVID-19 pandemic and governmental state of emergency orders related

thereto, the Company was unable to meet with and obtain financing to complete the purchase from its lenders.

The Ovintiv Agreement was

terminated and the parties agreed to settle with the Company receiving a $ 50,000 return of its deposit.

The Company estimated a loss

on the deposit of $ 725,000 in the quarter ending June 30, 2020 which is included in general and administrative expense, with the remainder

recorded in the quarter ending September 30, 2020.

No amounts were outstanding as of December 31, 2020.

ACQUISITION OF PARDUS OIL AND NATURAL GAS PROPERTIES

April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, entered into a Purchase and Sale Agreement (“the

Pardus Agreement”) with Pardus Oil & Gas, LLC and Pardus Oil & Gas Operating GP, LLC to purchase certain oil and natural

gas properties in Texas comprising 139 gross wells and approximately 30,000 net acres, 77.3 miles of gathering lines and pipelines and

related facilities and equipment, and all general and limited partner interest in Pardus Oil & Gas Operating, LP.

The purchase price,

as amended, included the assumption of certain obligations totaling $ 1,584,042 and a cash payment of $ 40,000 for a total purchase price

of $ 1,624,042 .

The transaction closed on April 7, 2020 .

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

Fair Value of Assets Acquired

Accounts receivable

Inventory of oil in tanks

Equipment and gathering lines

Oil and natural gas properties

Total Assets Acquired

Fair Value of Liabilities Assumed

Accounts payable – trade

Note payable – current

Royalty suspense

Asset retirement obligations

Total liabilities assumed

Purchase Price

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

and natural gas properties

value of oil and gas properties was based on an allocation of the purchase price which included assignment of values to the other identifiable

assets acquired and liabilities assumed.

fair value of asset retirement obligations are included in proved oil and natural gas properties with a corresponding liability in the

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.

inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made

by management and represent non-recurring Level 3 inputs

instruments and other

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

liabilities primarily related to well activity prior to close.

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

ACQUISITION OF XTO OIL AND NATURAL GAS PROPERTIES

6 unchanged sentences

The transaction closed on May 14, 2021 with an effective date of January 1, 2021.

XTO acquisition has been accounted for as an asset acquisition using the acquisition method of accounting under FASB ASC 805, Business

Combinations (“ASC 805”).

Under the accounting for asset acquisitions, the acquisition is recorded using a cost accumulation

and allocation model under which the cost of the acquisition is allocated on a relative fair value basis to the assets acquired and liabilities

For asset acquisitions under ASC 805, acquisition-related transaction costs are capitalized as a component of the cost of the

assets acquired.

The XTO acquisition has been assessed under the screen test for business

combinations under FASB ASC 805, Business Combinations (“ASC 805”).

The XTO acquisition met the screen test and has been accounted

for as an asset acquisition using the acquisition method of accounting.

Under the accounting for asset acquisitions, the acquisition

is recorded using a cost accumulation and allocation model under which the cost of the acquisition is allocated on a relative fair value

basis to the assets acquired and liabilities assumed.

Acquisition-related transaction costs are capitalized as a component of the cost

of the assets acquired.

a condition of the sale, the Company purchased a $ 5,000,000 performance bond for the benefit of the seller for proper plugging, abandonment

2 unchanged sentences

To effect the letter of credit, the Company entered into a Promissory Note Agreement with Bank of Oklahoma, NA in the amount of $3,750,000

which is due on demand with an interest rate established by the Bank, currently at 4 percent.

The Promissory Note, and associated letter

of credit, is collateralized with a bank certificate of deposit in a corresponding amount.

In addition, the Company is required to deposit

$ 100,000 per month, up to $ 1,250,000 , into a sinking fund to be held by the surety.

which is due on demand with an interest rate established by the Bank, currently at 4%.

The Promissory Note, and associated letter of credit, is collateralized with a bank certificate of deposit in a

corresponding amount.

In addition, the Company is required to deposit $100,000 per month, up to $ 1,250,000 , into a sinking fund to be

held by the surety.

Subsequent amendments increased the monthly payment

amounts to $160,000 in response to additional bonding requested by the State of New Mexico.

following table sets forth the Company’s preliminary purchase price allocation:

9 unchanged sentences

Purchase Price

value of oil and gas properties was based on an allocation of the purchase price which included assignment of values to the other identifiable

assets acquired and liabilities assumed.

The value of inventory, vehicles, and royalty suspense was based on carrying value at the time

of the acquisition.

The value of oil and gas properties was

based on an allocation of the purchase price which included assignment of values to the other identifiable assets acquired and liabilities

The value of inventory, vehicles, and royalty suspense was based on their relative fair values as described above.

fair value of asset retirement obligations are included in proved oil and natural gas properties with a corresponding liability in the

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Proceeds of the loan will be used for recompletion or workover of the Workover Wells.

As of June 30, 2021 approximately $ 446,000 has

been advanced from the loan and is included in Long Term Notes Payable on the Condensed Consolidated Balance Sheet.

As part of the JDA,

Empire Texas will assign to PIE a combined 85% working and revenue interest in the Workover Wells;

an assignment was completed in October

2020 for the initial three Workover Wells.

Of the assigned interest, 70% working and revenue interest will be used to repay the obligations

under the term loan agreement.

Once the term loan is repaid, PIE will reassign a 35% working and revenue interest to Empire Texas in

each of the Workover Wells and retain a 50% working and revenue interest (See Note 10).

Activity resulting from the JDA is being treated

as a conveyance.

As of September 30, 2021 approximately $ 464,000

has been advanced from the loan and is included in Long Term Notes Payable on the Condensed Consolidated Balance Sheet.

As part of the

JDA, Empire Texas will assign to PIE a combined 85% working and revenue interest in the Workover Wells;

an assignment was completed in

October 2020 for the initial three Workover Wells.

Of the assigned interest, 70% working and revenue interest will be used to repay the

obligations under the term loan agreement.

Once the term loan is repaid, PIE will reassign a 35% working and revenue interest to Empire

Texas in each of the Workover Wells and retain a 50% working and revenue interest (See Note 8).

Activity resulting from the JDA is being

treated as a conveyance.

addition, PIE and Empire entered into a Securities Purchase Agreement (“Securities Agreement”) whereby PIE purchased for

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COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

Company uses derivative financial instruments to manage its exposure to commodity price fluctuations.

Commodity derivative instruments

are used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells.

The Company does

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

The Company’s derivative financial instruments

consist of oil swaps.

The Company uses derivative financial instruments to manage its exposure

to commodity price fluctuations.

Commodity derivative instruments are used to reduce the effect of volatility of price changes on the

oil and natural gas the Company produces and sells.

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

trading purposes.

The Company’s derivative financial instruments consist of put options.

Company does not designate its derivative instruments to qualify for hedge accounting.

2 unchanged sentences

Unrealized gains and losses

related to the swap contracts are recognized and recorded as an asset or liability on the Company’s condensed consolidated balance

related to the contracts are recognized and recorded as an asset or liability on the Company’s condensed consolidated balance

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

for the three and six months ended June 30, 2021 and 2020:

Three months ended June 30,

Six months ended June 30,

for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

Nine months ended September 30,

Gain (loss) on derivatives:

4 unchanged sentences

$ ( 103,166 )

$ ( 539,949 )

following represents the Company’s net cash receipts from (payments on) derivatives for the three and six months ended June 30,

following represents the Company’s net cash receipts from (payments on) derivatives for the three and nine months ended September

30, 2021 and 2020:

Three months ended June 30,

Six months ended June 30,

Net cash received from payments on derivatives

Three months ended September 30,

Nine months ended September 30,

Net cash received (payments made) on derivatives

Oil derivatives

4 unchanged sentences

$ ( 686,163 )

following table sets forth the Company’s outstanding derivative contracts at June 30, 2021.

The Company has no outstanding natural

gas derivatives.

following table sets forth the Company’s outstanding derivative contracts at September 30, 2021.

WTI Index Put Options:

Quarterly volume (MBbl)

Price per Bbl

Floor Price (Bbl)

WTI Index Put Options:

Quarterly volume (MBbl)

Floor Price (Bbl)

WTI Index Put Options:

Quarterly volume (MBbl)

Floor Price (Bbl)

following table represents the Company’s outstanding debt.

September 30,

Senior Revolver Loan Agreement

2020 SBA Payroll Protection Plan loan

2021 SBA Payroll Protection Plan loan

2020 SBA Paycheck Protection Program Loan

2021 SBA Paycheck Protection Program Loan

Unsecured Promissory Note – Pardus

PIE Joint Development Agreement Loan, Related Party

Various Vehicle and Equipment notes

Various Vehicle and Equipment Loans

Secured Convertible Note, Related Party (See Note 9)

Unsecured Convertible Notes (see Note 11)

Unamortized Debt Issue Costs

1 unchanged sentence

( 3,202,063 )

Total Debt net of Debt Issue Costs and Discount

Total Debt, Net of Debt Issue Costs and Unamortized Discount

Less current maturities

Total Long-Term Debt

March 10, 2021 the Company entered into the Third Amendment to its Senior Revolver Loan Agreement (“the Amended Agreement”)

with CrossFirst Bank (“CrossFirst”).

The Amended Agreement commitment amount is $ 8,520,000 which is reduced by $ 180,000 per

calendar quarter beginning June 30, 2021 and the maximum amount that can be advanced under the Agreement is $ 20,000,000 and includes

interest at Wall Street Journal Prime plus 150 basis points ( 4.75 % as of June 30, 2021).

July 7, 2021 the Company entered into the Fourth Amendment to its Senior Revolver Loan Agreement (“the Amended

Agreement”) with CrossFirst Bank (“CrossFirst”).

The maximum amount that can be advanced under the Agreement is

$20,000,000 and the existing commitment amount is $ 7,980,000 which

is reduced by $ 300,000 per

calendar quarter beginning September

30, 2021 and includes interest at Wall

Street Journal Prime

plus 150 basis points ( 4.75 %

as of September 30, 2021).

The Amended Agreement matures on March

Collateral for the loan is a lien on all of the assets of the Company’s wholly owned subsidiaries, Empire Louisiana and Empire

North Dakota, and a first priority mortgage lien, pledge of and security interest in not less than 80 % of Empire Louisiana’s and

Empire North Dakota’s producing oil, gas and other leasehold and mineral interests.

The Amended Agreement requires the Company

maintain commodity derivatives at certain thresholds based on projected production and, beginning March 31, 2021, to maintain certain

covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 6:1 on a trailing twelve-month basis

and reducing quarterly to 4:1 as of March 31, 2022 and thereafter.

As of June 30, 2021, the Company has an outstanding loan balance of

$ 7,669,500 under the Amended Agreement.

The Company was not in compliance with the commodity derivative requirement as of June 30, 2021.

The Company was in compliance with the other covenants at June 30, 2021.

On July 7, 2021 the Company entered into the Fourth Amendment

to its Senior Revolver Loan Agreement, which among other things waived the Company's non-compliance with the commodity derivative requirement

and extended the maturity to March 27, 2024 .

Accordingly, the Company's outstanding loan balance is presented as long-term as of June

30, 2021 (See Note 17).

2016 and 2017, the Company issued $ 260,000 of Senior Unsecured Promissory Notes which contained a conversion feature allowing the investors

to convert the Notes into shares of the Company’s common stock.

In 2019, all but three of the Note holders converted their notes

with a balance of $ 157,500 into 1,575,000 shares of the Company’s common stock.

In January 2020, three of the Senior Unsecured

Promissory Note investors exercised the conversion feature and converted their $ 102,500 notes for 1,025,000 shares of the Company's common

All of the Senior Unsecured Promissory Notes have been converted to common stock of the Company as of June 30, 2020.

April 1, 2020, in conjunction with the purchase of assets from Pardus Oil & Gas, LLC (see Note 5), the Company entered into a unsecured

Collateral for the loan is a lien

on all of the assets of Empire Louisiana and Empire North Dakota, wholly owned subsidiaries of the Company, Empire Louisiana and

Empire North Dakota, and a first priority mortgage lien, pledge of and security interest in not less than 80 %

of Empire Louisiana’s and Empire North Dakota’s producing oil, gas and other leasehold and mineral interests.

Amended Agreement requires the Company maintain commodity derivatives at certain thresholds based on projected production and,

beginning March 31, 2021, to maintain certain covenants including an EBITDAX

to interest expense of at least 3:1 and funded debt to EBITDAX of 6:1 on a trailing twelve-month basis and reducing quarterly to 4:1

as of March 31, 2022 and thereafter.

September 30, 2021, the Company has an outstanding loan balance of $ 7,369,500 under

the Amended Agreement.

The current maturities of the Amended Agreement is $1,200,000.

The Company was in compliance with the loan

covenants at September 30, 2021.

April 1, 2020, in conjunction with the purchase of assets from Pardus Oil & Gas, LLC, the Company entered into an unsecured

promissory note agreement with the seller in the amount of $ 378,000 .

The note was payable in one installment on April 1, 2021 and bears

interest at the one-year LIBOR rate (1% as of June 30, 2021).

The note was paid on April 1, 2021 (See Note 6).

The note was payable in one installment on April 1, 2021 and bore

interest at the one-year LIBOR rate.

The note was paid on April 1, 2021 .

May 5, 2020, the Company received an SBA Payroll Protection Plan (“PPP”) loan for $ 160,700 .

The loan matured on May 5, 2022

and had an interest rate of 1 %.

The loan was scheduled to mature

on May 5, 2022 and had an interest rate of 1 %.

In June, 2021 the Company was informed that the SBA had forgiven the entire loan balance.

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will be applied to repayment of the loan.

As of June 30, 2021, $462,959 has been advanced from the loan (See Note 8).

As of September 30, 2021, $463,569 has been advanced from the PIE loan (See Note 6).

April 30, 2021 the Company received a Second Draw SBA Payroll Protection Plan (“PPP”) loan for $ 106,850 .

The loan matures

on April 30, 2026 and has an interest rate of 1 %.

There are no payments due until ten months after the covered period at which time the

payment amount will be determined based on the portion of the loan which has not been forgiven under criteria established by the SBA,

using an amortization of the remaining term of the loan.

The Company expects that the loan amount will be forgiven based on currently

published guidelines of the United States Small Business Administration.

Company has an outstanding Letter of Credit in the amount of $ 3,750,000 which was issued in conjunction with the purchase of oil and

natural gas properties from XTO (See Note 7).

To effect the letter of credit, the Company entered into a Promissory Note Agreement with

Bank of Oklahoma, NA in the amount of $ 3,750,000 which is due on demand with an interest rate established by the Bank, currently at 4

The Promissory Note, and associated letter of credit, is collateralized with a bank certificate of deposit in a corresponding

The loan was scheduled

to mature on April 30, 2026 and has an interest rate of 1 %.

In October 2021 the Company was informed that the SBA had forgiven the entire

loan balance (See Note 15).

CONVERTIBLE NOTES PAYABLE

May 14, 2021 Empire New Mexico entered into a Senior Secured Convertible Note Agreement (the “Secured Note”) in the amount

of $ 16,250,000 with Energy Evolution Master Fund, Ltd., a related party (“Energy Evolution”) (See Note 14).

The Secured Note

is collateralized by all assets of Empire New Mexico, matures on December 31, 2021 and bears an interest rate of 3.8 %.

The Secured Note

provides that up to 40% of the balance, together with accrued interest, can be converted into the Company’s common stock at the

lesser of $1.25 per share or the offering price if the Company has a subsequent capital raise or an aggregate of 5,200,000 shares of

common stock (without giving effect to any interest that may be converted).

Additionally, the conversion price is reduced by $ 0.25 per

share if any amount is due on the Secured Note as of October 1, 2021 or the Company has not filed a registration statement with the United

States Securities and Exchange Commission within 120 days of the Secured Note.

If the registration statement described above is not filed

within 120 days of the date of the Secured Note, Energy Evolution has the option to convert 50% of the Secured Note amount into common

stock of the Company at a rate of $1.00 per share.

In such event, the maximum number of shares into which the Secured Note may be converted

increases to 8,125,000 shares of the Company’s common stock (without giving effect to any interest that may be converted).

if any principal amount of the Secured Note remains outstanding on October 1, 2021, the conversion price shall be reduced by $0.25, provided

the conversion price cannot be reduced by more than $0.25.

The Company agreed to use commercially reasonable best efforts to (i)

cause the number of members serving on the Company’s Board of Directors to be increased to six, (ii) cause an additional designee

of Energy Evolution or its affiliate to be appointed to the Company’s Board of Directors, and (c) cause one of the designated directors

of Energy Evolution or its affiliate to be appointed the Chairman of Empire Petroleum’s Board of Directors with the power to cast

the deciding vote in case of a deadlocked board vote.

The Secured Note may be prepaid without penalty, but Empire New Mexico must

provide at least 30 days’ prior written notice so the holders thereof may exercise their conversion rights.

As of June 30, 2021,

there were no conversions of the Secured Note to shares of the Company’s common stock.

The Company made prepayments of $ 2,800,000

on the Secured Note through June 30, 2021.

embedded conversion option has been bifurcated and accounted for separately as a derivative financial instrument.

The separated derivative

was initially recorded at fair value at the inception date and revalued as of June 30, 2021 resulting in a fair value of $ 5,530,677 and

$ 6,126,961 , respectively.

The change in fair value for the three months ended June 30, 2021 of $ 596,284 and recorded in Other Income.

partial consideration for the issuance of the Secured Note, Energy Evolution received a closing fee of 1,500,000 shares of the Company’s

common stock and warrants to purchase 3,000,000 shares of common stock for $ 1.00 per share which expire on May 14, 2022 .

determined these were equity-classified financing instruments and the proceeds are allocated on a relative fair value basis between the

debt, warrants, and common shares at issuance.

At issuance, the discount associated with the Secured Note was $ 10,125,177 ;

of $ 5,530,677 relating to the embedded derivative liability, $ 1,500 and $ 2,773,500 in common stock and paid in capital, respectively,

relating to the issuance of shares of the Company's common stock, and $ 1,819,500 in paid in capital relating to the issuance of warrants

to purchase common stock.

The fair value of the warrants was determined using a Black-Scholes model.

The warrants were exercised during

the three months ended June 30, 2021 and the Company received cash proceeds of $ 3,000,000 .

The discount associated with the Secured Note

related to the embedded conversion liability and the issuance of the equity-classified financing instruments is amortized under the interest

method and resulted in interest expense of $ 2,289,966 for the three months ended June 30, 2021.

May, 2021 the Empire New Mexico entered into $ 3,243,000 of Unsecured Convertible Notes (the “Unsecured Notes”) with a group

of accredited investors, including the Company's related party Energy Evolution, constituting $ 1,500,000 of the total Unsecured Convertible

The Unsecured Notes mature on May 9, 2022 with a single payment and bear interest at 5 %.

The Unsecured Note holders may convert

their notes to common stock of the Company at the lesser of $1.25 per share or the price per share offered by the Company if the Company

has a future capital raise for an aggregate 2,594,400 shares of common stock (without giving effect to any interest that may be converted).

Pursuant to the Unsecured Notes, the Company agreed to use commercially reasonable best efforts to cause a registration statement on

Form S-3 to be filed with Securities Exchange Commission within 90 days for all Common Stock underlying the Unsecured Notes.

Mexico has the right to force conversion in the event that (a) the 20-day weighted average price of the Common Stock trades above $3.50

per share on the OTCQB or any exchange and (b) the Registration Statement has become effective.

The Unsecured Notes may be prepaid without

penalty, but Empire New Mexico must provide at least 30 days’ prior written notice so the holders thereof may exercise their conversion

As of June 30, 2021 Energy Evolution had converted their $ 1,500,000 Unsecured Note to 1,200,000 shares of the Company’s

common stock (See Note 13).

Company determined the embedded conversion features of the Unsecured Notes were equity-classified financing instrument.

value of the conversion feature was determined using a beneficial conversion model based on the a 60-day weighted average stock

price and the maximum number of shares to be received if converted.

As issuance, the amount recorded to additional paid in capital

was $ 544,824 .

May 14, 2021, the Company’s wholly owned subsidiary, Empire New Mexico entered into a Senior Secured Convertible Note Agreement

(the “Secured Note”) in the amount of $ 16,250,000 with Energy Evolution Master Fund, Ltd., a related party (“Energy

Evolution”) (See Note 12).

The Secured Note is collateralized by all assets of Empire New Mexico, matures on December 31, 2021

and bears an interest rate of 3.8 %.

The Secured Note provides that up to 40% of the balance, together with accrued interest, can be converted

into the Company’s common stock at the lesser of $1.25 per share or the offering price if the Company has a subsequent capital

raise or an aggregate of 5,200,000 shares of common stock (without giving effect to any interest that may be converted) .

The conversion

terms of the Secured Note were subject to further adjustments as defined in that agreement.

The embedded conversion option has been bifurcated

and accounted for separately as a derivative financial instrument.

The separated derivative was initially recorded at fair value at the

inception date and revalued as of September 30, 2021 resulting in a fair value of $ 5,530,677 and $ 5,437,746 , respectively.

30, 2021, the existing bifurcated derivative liability was removed in connection with the Amended Secured Note as further discussed.

The change in fair value for the three and nine months ended September 31, 2021 of $ 689,215 and $ 92,931 is recorded as Unrealized Gain on the Embedded Conversion Option in the Statements of

partial consideration for the issuance of the Secured Note, Energy Evolution received a closing fee of 1,500,000

shares of the Company’s common stock and warrants to purchase three

million shares of common stock for $ 1.00

per share which expire on May

The Company determined these were equity-classified financing instruments and the proceeds are allocated on a

relative fair value basis between the debt, warrants, and common shares at issuance.

At issuance, the discount associated with the

Secured Note was $ 10,125,177 ;

consisting of $ 5,530,677

relating to the embedded derivative liability, $ 1,500

and $ 2,773,500

in common stock and paid in capital, respectively, relating to the issuance of shares of the Company’s common stock, and

in paid in capital relating to the issuance of warrants to purchase common stock.

The fair value of the warrants was determined

using a Black-Scholes model.

The warrants were exercised in 2021 and the Company received cash proceeds of $ 3,000,000 .

The discount associated with the Secured Note related to the embedded conversion liability and the issuance of the equity-classified

financing instruments is amortized under the interest method and resulted in interest expense of $ 3,832,440

and $6,125,306 for the three and nine months ended September 30, 2021.

Prior to amending the Secured Note in September 2021, the

Company made principal payments totaling $4,050,000, inclusive of the application of the $1,250,000 proceeds from the termination

of the investment in the Energy Evolution Fund LP (See Note 3).

September 29, 2021 the parties entered into a Loan Modification Agreement (the “Amended Secured Note”) pursuant to which

Energy Evolution exchanged $ 6,500,000 in principal under the Secured Note in exchange for 5,305,208 shares of common stock, warrants

to purchase 2,000,000 shares of the Company’s common stock at $ 1.25 per share and amended certain terms of the remaining $ 5,700,000

of principal under the Secured Note.

As amended, the remaining principal balance matures and becomes due on June 30, 2023 and upon maturity

of the Amended Secured Note, Energy Evolution has the sole discretion to require cash settlement or to redeem the principal balance,

together with accrued interest, in exchange for the Company’s common stock at $2 per share.

Prior to maturity, interest accrues

quarterly at 3.8% and Energy Evolution has the option to receive interest in common stock at $1.25 per share in lieu of cash.

to the Amended Secured Note, the Company’s obligations with respect to a registration statement under the Secured Note were

extended, the Company executed and delivered a Pledge and Security Agreement granting Energy Evolution a first priority perfected

security interest in the Company’s membership interest in Empire New Mexico, d/b/a Green Tree New Mexico, the Company and

Green Tree New Mexico agreed to use commercial reasonable best efforts to separate Green Tree New Mexico from the Company as an

independent business on or before December 31, 2022 in a spin-off to stockholders of the Company.

In accordance with ASC 470-20, the

Company accounted for this exchange as an induced conversion based on the short period time of the offer was open and the

substantive conversion feature offer.

The Company accounted for the conversion of the debt instruments as an inducement by expensing

the fair value of the instruments that were issued in excess of the original terms of the Secured Notes.

The Company reduced the

outstanding debt by $9,141,327, representing the face amount of the Secured Notes converted of $6,500,000, net of unamortized

discount costs of $2,796,419, and the embedded conversion liability of $5,437,746.

The Company recorded induced conversion expense

of $2,276,813 representing the difference in fair value of the instruments exchanged, including the fair value of the warrants to

purchase 2,000,000 shares of common stock at $1.25 per share.

The embedded conversion option of the principal balance outstanding

after the conversion and amendment, has been bifurcated and accounted for separately as a derivative financial instrument.

separated derivative was initially recorded at fair value of $2,017,287, with the amount recorded as a discount against the

surviving Amended Secured Note balance and the derivative liability will be revalued on a quarterly basis.

On September 30, 2021,

95,208 shares of common stock were issued as payment for the outstanding accrued interest on the Secured Note.

May 2021 the Empire New Mexico entered into $ 3,243,000

of Unsecured Convertible Notes (the “Unsecured Notes”) with a group of accredited investors, including the

Company’s related party Energy Evolution, constituting $1,500,000 of the total Unsecured Convertible Notes.

The Unsecured

Notes had a maturity of May

9, 2022 with a single payment and interest at 5 %.

Unsecured Note holders had the ability to convert their notes to common stock of the Company at the lesser of $1.25 per share or the

price per share offered by the Company if the Company has a future capital raise for an aggregate 2,594,400 shares of common stock

(without giving effect to any interest that may be converted).

At September 30, 2021 $ 2,918,000

of the Unsecured Notes have been converted into

2,334,400 shares of common stock of the Company and 22,378 shares of common stock have been issued as payment for accrued

interest on the Unsecured Note.

The remaining Unsecured Notes in the amount of $325,000 were repaid in

September 2021.

Company determined the embedded conversion features of the Unsecured Notes were equity-classified financing instruments.

value of the conversion feature was determined using a beneficial conversion model based on a 60-day weighted average stock price

and the maximum number of shares to be received if converted.

As issuance, the amount recorded to additional paid in capital was

The discount associated with these transactions is amortized under the interest method and resulted in interest expense of $254,876

for the three months ended June 30, 2021.

and $ 544,824 for the three

and nine months ended September 30, 2021, respectively.

an inducement for investors to enter into the Unsecured Convertible Notes, the Company’s Chief Executive Officer and President

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its right to buy 600,000 shares of the Company’s common stock.

In conjunction with this transaction, each of the Company’s

Chief Executive Officer and President partially exercised a warrant to purchase 300,000 shares at an exercise price of $ 0.25 .

determined that offering the “right to buy” shares resulted in an expense of $ 989,155 of the Company based on the fair value

of contributions made by the Company’s Chief Executive Officer and President on its behalf.

The fair value of the “right

to buy” shares was determined using a Black-Scholes model.

The expense is including in General and Administrative in the Condensed

Consolidated Statement of Operations.

In conjunction with the conversion of the Unsecured Notes, each

of the Company’s Chief Executive Officer and President partially exercised a warrant and options to purchase 643,600 shares at

an exercise price of $ 0.25 and $0.33 respectively.

The Company determined that offering the “right to buy” shares resulted

in an expense of $ 989,155 of the Company based on the fair value of contributions made by the Company’s Chief Executive Officer

and President on its behalf.

The fair value of the “right to buy” shares was determined using a Black-Scholes model.

expense is including in General and Administrative in the Condensed Consolidated Statement of Operations.

At September 30, 2021, there was a subscription

receivable balance for stock purchased on September 29, 2021 by the Company’s Chief Executive Officer for which payment was not

received until October 2021.

a lessee, the Company leases its corporate office headquarters in Tulsa, Oklahoma and three field offices.

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charges for property taxes, insurance, and variable payments related to non-lease components, including common area maintenance.

of use lease expense was $ 78,712 for the six months ended June 30, 2021.

Cash paid for right of use lease was $ 72,045 for the period.

balance sheet information related to the right of use leases as of June 30, 2021:

Operating lease asset (included in Other Property and Equipment

of use lease expense was $ 135,061 for the nine months ended September 30, 2021.

Cash paid for right of use lease was $ 123,973 for the

balance sheet information related to the right of use leases as of September 30, 2021:

lease asset (included in Other Property and Equipment)

Current portion of lease liability

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weighted average remaining term for the Company’s right of use leases is 3.8 years.

of lease liabilities as of June 30, 2021:

of lease liabilities as of September 30, 2021:

Total lease payments

5 unchanged sentences

As a result, if there is a loss from continuing operations, Diluted EPS is computed in the same manner as Basic EPS.

At June 30, 2021

and 2020, the Company had 10,000,000 and 5,004,167 respectively, options outstanding that were not included in the calculation of earnings

per share for the periods then ended.

Such financial instruments may become dilutive and would then need to be included in future calculations

of Diluted EPS.

At June 30, 2021 and 2020, the outstanding options and convertible notes were considered anti-dilutive because the strike

prices were above the market price and the Company has incurred operating losses year to date.

At September 30,

2021 and 2020, the Company had 9,012,800 and 5,004,167 respectively, options outstanding that were not included in the calculation of

earnings per share for the periods then ended.

Such financial instruments may become dilutive and would then need to be included in future

calculations of Diluted EPS.

At September 30, 2021 and 2020, the outstanding options and convertible notes were considered anti-dilutive

because the strike prices were above the market price and the Company has incurred operating losses year to date.

April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the “Stock

1 unchanged sentence

The total number of shares of common stock that may be issued pursuant to stock options under the Stock Option Plan

is 10,000,000 .

is ten million.

Further, on April 3, 2019 the Company granted Mr.

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to Paid in Capital.

All of the options were vested as of June 30, 2021.

August 7, 2020 concurrently with the Joint Development Agreement with Petroleum & Independent Exploration, LLC and related entities

(“PIE”), the companies entered into a Securities Purchase Agreement (“Securities Agreement”) whereby PIE purchased

for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock at an exercise

price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of $0.25 per share, (d)

warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e) warrants to purchase up

to 11,066,667 shares of Empire common stock at an exercise price of $ 0.141 per share pursuant to various vesting provisions as detailed

in the Securities Agreement.

The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation

with the following assumptions:

no dividend yield, expected annual volatility of 147 %, risk free interest rate of .

19 % and an expected

useful life of 4 years .

The fair value of the warrants of $ 450,848 was allocated to paid in capital (See Note 8).

On March 11, 2021 the

Company amended the Securities Agreement to remove the vesting provisions for the warrants and PIE exercised the warrants for an aggregate

exercise price of $ 3,349,052 (See Note 8).

February and March 2021, the Company issued to a group of accredited investors 8,993,858

shares of its common stock and warrants

to purchase 8,993,858

shares of its common stock for $ .50 per

share which expires on December 31, 2022 .

Proceeds from the sale were $ 3,147,850 .

The value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following

no dividend yield, expected annual volatility of 180 %,

All of the options were vested as of September 30, 2021.

August 27, 2021, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2021 Incentive Plan (the “Incentive

The total number of shares of common stock that may be issued pursuant to the Incentive Plan is three million.

As of September

30, 2021 no grants have been made.

August 7, 2020 concurrently with the Joint Development Agreement with Petroleum & Independent Exploration, LLC and related

entities (“PIE”), the companies entered into a Securities Purchase Agreement (“Securities Agreement”)

purchased for $525,000 (a) 3,500,000 shares of Empire common stock, (b) warrants to purchase 2,625,000 shares of Empire common stock

at an exercise price of $0.20 per share, (c) warrants to purchase 1,800,000 shares of Empire common stock at an exercise price of

$0.25 per share, (d) warrants to purchase 8,136,518 shares of Empire common stock at an exercise price of $0.10 per share, and (e)

warrants to purchase up to 11,066,667 shares of Empire common stock at an exercise price of $ 0.141

per share pursuant to various vesting provisions as detailed in the Securities Agreement.

The value allocated to the

warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:

yield, expected annual volatility of 147 %,

risk free interest rate of .

and an expected useful life of 21 months.

and an expected useful life of 4

The fair value of the warrants of $ 450,848

was allocated to Paid in Capital.

the six months ended June 30, 2021, warrants for 1,547,314 shares of common stock have been exercised.

connection with the purchase of XTO assets (See Note 7) the Company issued a Senior Secured Convertible Note due December 31, 2021 , in

the aggregate principal amount $ 16,250,000 (the “Secured Convertible Note”) to Energy Evolution Fund Ltd, a related party

was allocated to paid in capital (See Note 6).

On March 11, 2021 the Company amended the Securities Agreement to remove the vesting

provisions for the warrants and PIE exercised the warrants for an aggregate exercise price of $ 3,349,052

(See Note 6).

As partial consideration for the issuance of the Secured Convertible Note, Empire issued to Energy Evolution Ltd (i) 1,500,000

shares of common stock along with (ii) a warrant certificate to purchase up to 3,000,000 shares of common stock at an exercise price

of $1.00 per Warrant Share until May 14, 2022.

Under the warrant certificate, the exercise price is subject to customary downward adjustments.

The value allocated to the common stock, conversion feature, and warrants was $ 10,125,177 .

February and March 2021, the Company issued to a group of accredited investors 8,993,858 shares of its common stock and warrants to purchase

8,993,858 shares of its common stock for $ .50 per share which expires on December 31, 2022 .

Proceeds from the sale were $ 3,147,850 .

value allocated to the warrants was the fair value determined using the Black-Scholes option valuation with the following assumptions:

no dividend yield, expected annual volatility of 180 %, risk free interest rate of .14% and an expected useful life of 21 months.

fair value of the warrants of $ 2,350,407 was allocated to Paid in Capital.

For the nine months ended September 30, 2021, warrants for

2,518,743 shares of common stock have been exercised.

connection with the purchase of XTO assets (See Note 5) the Company issued a Senior Secured Convertible Note due December

31, 2021 , in the aggregate principal amount $ 16,250,000

(the “Secured Convertible Note”) to Energy Evolution Fund Ltd, a related party (See Note 9).

As partial consideration

for the issuance of the Secured Convertible Note, Empire

issued to Energy Evolution Ltd (i) 1,500,000 shares of common stock along with (ii) a warrant certificate to purchase up to three

million shares of common stock at an exercise price of $1.00 per Warrant Share until May 14, 2022.

Under the warrant certificate,

the exercise price is subject to customary downward adjustments.

The value allocated to the common stock, conversion

feature, and warrants was $ 10,125,177 .

In September, 2021 the Company and the Energy Evolution Master Fund, Ltd.

entered into a Loan Modification Agreement (the

“Amended Secured Notes”) (See Note 9).

Under the Amended Secured Notes, among other terms the Company issued a warrant

certificate to purchase up to two million shares of common stock at an exercise price of $1.25 per Warrant Share until December 31,

The exercise price is subject to customary downward adjustments.

Additionally,

in conjunction with the purchase of XTO assets (See Note 7), the Company entered into $ 3,243,000 of Unsecured Convertible Notes (the

“Unsecured Notes”) with a group of accredited investors.

The Unsecured Notes mature on May 9, 2022 with a single payment

and bear interest at 5 % (See Note 11).

The Unsecured Note holders may convert their notes to common stock of the Company at the lesser

of $ 1.25 per share or the price per share offered by the Company if the Company has a future capital raise.

At June 30, 2021 $ 1,500,000

of the Unsecured Notes have been converted into 1,200,000 shares of common stock of the Company.

The value allocated to the conversion

feature was $ 544,824 .

in conjunction with the purchase of XTO assets (See Note 5), the Company entered into $ 3,243,000

of Unsecured Convertible Notes (the “Unsecured Notes”) with a group of accredited investors.

The Unsecured Notes had a

maturity date of May

9, 2022 with a single payment and interest at 5 %

(See Note 7).

The Unsecured Note holders had the ability to convert their notes to common stock of the Company at the lesser of

per share or the price per share offered by the Company if the Company has a future capital raise.

At September 30, 2021 $ 2,918,000

of the Unsecured Notes have been converted into 2,334,400

shares of common stock of the Company.

The remaining Unsecured Notes in the amount of $325,000 were repaid in September 2021 and no

amounts remain outstanding or convertible.

The fair value of the warrants of $ 544,824

was allocated to Paid in Capital.

August 27, 2021 the Company’s Board of Directors recommended a one for four reverse stock split such that every holder of the

Company’s common stock shall receive one share of Common Stock for every four shares owned.

In addition, the Board recommended

the Company to issue ten million shares of no-par value Preferred Stock.

The majority of the stockholders, and the majority of the

minority stockholders approved the recommendations.

As of September 30, 2021 the Company has not made the reverse stock split effective, nor has it

issued any Preferred Stock.

RELATED PARTY TRANSACTIONS

1 unchanged sentence

(“Energy Evolution”) is a related party of the Company as it beneficially owns approximately

21.4 % of the Company’s outstanding shares of common stock as of June 30, 2021.

23 % of the Company’s outstanding shares of common stock as of September 30, 2021.

Additionally, a board member of Energy Evolution

is a related party of the Company as he separately beneficially owns approximately 23.58 % of the Company’s outstanding shares of

common stock as of June 30, 2021.

The board member also is a majority owner of Petroleum & Independent Exploration, LLC and related

entities (“PIE ”).

March 2021, the majority owner of PIE, through the exercise of warrants, became a significant shareholder of the Company’s outstanding

shares of stock (See Note 12).

The Company has a joint development agreement with PIE to perform recompletion or workover on specified

mutually agreed upon wells (See Note 8).

As of June 30, 2021, the Company has incurred obligations of $ 462,959 as a part of the joint

development agreement (See Note 10).

connection with the purchase of XTO assets (See Note 7) the Company issued a Senior Secured Convertible Note due December 31, 2021, in

the aggregate principal amount $ 16,250,000 (the “Secured Note”) to Energy Evolution Ltd (See Note 11).

As partial consideration

for the issuance of the Secured Note, Empire issued to Energy Evolution Ltd (i) 1,500,000 shares of common stock along with (ii) a warrant

certificate to purchase up to 3,000,000 shares of common stock at an exercise price of $1.00 per warrant share until May 14, 2022.

the warrant certificate, the exercise price is subject to customary downward adjustments.

As of June 30, 2021 the Company has repaid

principal $ 2,800,000 plus interest of $ 56,472 on the Secured Note.

Additionally,

Energy Evolution Ltd, provided an Unsecured Convertible Note in the principal balance of $ 1,500,000 (See Note 11).

The funds received

by the Company in connection with the issuance of the Unsecured Convertible Notes were used to pay a performance bond required in connection

with the XTO acquisition.

Energy Evolution Ltd.

has converted its Unsecured Convertible Note to 1,200,000 shares of the Company’s

common stock as of June 30, 2021.

Evolution, Ltd also purchased 600,000 shares of the Company’s common stock in May, 2021 which had been offered as an inducement

to purchase the Unsecured Convertible Notes (See Note 10).

with the acquisition and financing of the XTO assets (See Note 7), the Company made an investment in Energy Evolution Fund LP, an affiliate

of Energy Evolution Ltd, a related party, in the amount of $ 1,250,000 (See Note 3).

The investment was mutually terminated on August

19, 2021 (See Note 17).

was appointed to the Company’s board in October 2021.

This board member separately beneficially owns approximately 18 % of the Company’s

outstanding shares of common stock as of September 30, 2021.

The board member also is a majority owner of Petroleum & Independent

Exploration, LLC and related entities (“PIE”).

In October 2021 another Energy Evolution member was appointed to the Company’s

board of directors.

March 2021, the majority owner of PIE, through the exercise of warrants, became a significant shareholder of the Company’s

outstanding shares of stock (See Note 9).

The Company has a joint development agreement with PIE to perform recompletion or workover

on specified mutually agreed upon wells (See Note 6).

As of September 30, 2021, the Company has incurred obligations of $ 463,569

as a part of the joint development agreement (See Note 8).

Company is a borrower from Energy Evolution under the secured and unsecured notes that were amended in the third quarter of 2021.

These notes and the associated amendment resulted in the issuance of warrants and common stock to Energy Evolution (See Note

SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental Cash Flow Information for the six months ended

June 30, 2021 and 2020:

Supplemental Cash Flow Information for the nine months ended September 30, 2021 and 2020:

Cash Paid for Interest

18 unchanged sentences

Management believes no materially significant liabilities

of this nature existed as of June 30, 2021.

March 22, 2021 the Company, through its wholly owned subsidiary, Empire ND Acquisitions, LLC, entered into a purchase and sale

agreement with 31 Group, LLC to acquire among other things, certain oil and gas properties in North Dakota.

The purchase price was

$ 900,000 , payable one year from the closing date, and is reduced by certain expenses which the Company might incur relating to the

properties or assessment of certain wells as uneconomic for up to one year from the closing date.

Prior to filing the assignment and

the transfer of operatorship of the wells, Empire received notice of a temporary restraining order issued by the District Court in

Rockwall County, Texas enjoining 31 Group from transferring any assets to Empire.

The Company and 31 Group, LLC negotiated a

termination agreement which was signed July 22, 2021 which returned both parties to their pre-Agreement position.

of this nature existed as of September 30, 2021.

March 22, 2021 the Company, through its wholly owned subsidiary, Empire ND Acquisitions, LLC, entered into a purchase and sale agreement

with 31 Group, LLC to acquire among other things, certain oil and gas properties in North Dakota.

The purchase price was $ 900,000 , payable

one year from the closing date, and is reduced by certain expenses which the Company might incur relating to the properties or assessment

of certain wells as uneconomic for up to one year from the

Prior to filing the assignment and the transfer of operatorship of the wells, Empire received notice of a temporary restraining

order issued by the District Court in Rockwall County, Texas enjoining 31 Group from transferring any assets to Empire.

The Company and

31 Group, LLC negotiated a termination agreement that was signed July 22, 2021 which returned both parties to their pre-Agreement position.

SUBSEQUENT EVENTS

July 7, 2021 the Company entered into the Fourth Amendment to its Senior Revolver Loan Agreement (“the Amended Agreement”)

with CrossFirst Bank (“CrossFirst”).

The Amended Agreement revolver extends the maturity of the loan to March 27, 2024 and

provides a commitment amount of $ 7,980,000 which is reduced by $300,000 each calendar quarter beginning September 30, 2021.

September 30, 2021, the Amended Agreement requires the Company maintain commodity derivatives at certain thresholds based on projected

production and to maintain certain covenants including an EBITDAX to interest expense of at least 3:1 and funded debt to EBITDAX of 5:1

on a trailing twelve-month basis.

July 22, 2021 the Company and 31 Group, LLC entered into a Mutual Termination Agreement which terminated the purchase and sale agreement

of March 22, 2021 between the companies.

(See Note 16).

August 19, 2021 the Company entered into a Mutual Termination Agreement with the Energy Evolution Fund, LP to terminate and rescind the

Company’s $ 1,250,000 investment in the Energy Evolution Fund, LP (See Note 3).

The proceeds from the recission were applied to

the outstanding balance of the Secured Convertible Note Payable (See Note 11).

July 1, 2021 and August 23, 2021 warrants to purchase 571,429 shares of the Company’s common stock were exercised.

realized $ 285,714 from the exercise.

In addition, options to purchase 700,000 shares of the Company’s common stock were exercised.

August 18, 2021 the Board of Directors of the Company approved the compensation plan for non-employee members of the Company’s

Board of Directors.

Under the plan, each non-employee Director will receive a Board fee of $ 80,000 and 120,000 shares of the Company’s

common stock, which vests on December 31, 2021 .

October 2021 the Company was informed that the SBA had forgiven the entire loan balance of its $ 106,850 SBA Paycheck Protection Program

(“PPP”) loan (See Note 8).

October 29, 2021, the Company, through its newly formed wholly owned subsidiary Empire Northwest Shelf LLC entered into a Purchase and

Sale Agreement dated October 22, 2021 with Rover Operating LLC and Rover Petroleum Properties, LLC (collectively, “Rover”)

to purchase certain oil and gas leasehold and other property interests in the state of New Mexico for a n initial

purchase price of $ 1.1

The Company paid

in escrow fees on October 29, 2021.

Closing is scheduled for December

October 8, 2021, the Board of Directors of the Company appointed Angela Baker as Chief Accounting Officer of the Company.

As a condition

of employment, Ms.

Baker was issued 60,000 shares of common stock of the Company under the Company’s 2021 Stock and Incentive Compensation

Plan which will vest over a period of three years in one-third increments on each anniversary of October 18, 2021.

On October 28, 2021, the Company filed a Form

S-3 Registration Statement with the SEC utilizing a “shelf” registration process, which registration statement was declared

effective by the SEC on November 5, 2021.

This registration statement provides the Company the ability to offer and sell from time

to time up to $350.0 million of various equity securities of the Company, subject to market conditions and the Company’s capital

This registration statement also registered the offer and resale from time to time by certain selling stockholders of the

Company of up to 21,360,165 shares of common stock of the Company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements