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Item 7. Management’s Discussion and Analysis

2025-03-27 compared with 2024-03-28 · 310 added, 289 removed, 48 unchanged (93% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read together with

the consolidated financial statements and notes to consolidated financial statements, which are included in this Annual Report on Form

10-K in Item 8, Financial Statements and Supplementary Data, and the information set forth in Part I, Item 1A – Risk Factors.

Our primary business is the optimization and development

of oil and gas interests.

In 2022 we had net income from operations but have incurred losses from operations in 2023 and in years prior

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

following discussion and analysis presents management’s perspective of our business, financial condition and overall performance.

This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook

for the future and should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements,

which are included in this Annual Report on Form 10-K in Item 8, Financial Statements and Supplementary Data, and the information set

forth in Part I, Item 1A – Risk Factors.

primary business is the optimization and development of oil and gas interests.

We have incurred losses from operations in 2024 and 2023.

There is no assurance that we will be profitable or obtain 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.

Production and Operating Data

The following table sets forth a summary of our production

and operating data for the years ended December 31, 2023 and 2022.

December 31, 2023

December 31, 2022

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.

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.

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.

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.

and Going Concern

The Company has a revolving line of credit agreement with Equity Bank which

requires the Company to maintain compliance with certain financial covenants computed on a quarterly and annual basis.

As of December

31, 2024, 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 was in default of its covenants in the third quarter of 2024 but obtained a waiver on November 12,

2024, to alleviate all prior defaults.

The Company carried a negative working capital of approximately $8.9 million as of December 31,

2024, an overall decline of approximately $2.6 million from the previous year.

Cash on hand also declined approximately $5.5 million during

the same period.

The overall decline in working capital and cash is primarily driven by the Starbuck Drilling Program in North Dakota

which incurred substantial capital spend.

Additionally, the Company initiated a return-to-production program in Texas which incurred additional

unforeseen operational costs.

The additional production from these projects did not fully offset the costs incurred and contributed to

the overall negative financial trend.

To meet its obligations, the Company increased its revolver commitment to $20.0 million in November

2024 and had two rights offerings in April and November of 2024 which raised approximately $30.5 million of capital, net of transaction

costs, to help fund the capital spend projects.

Additionally, as a result of increasing its revolver commitment, the Company had approximately

$8.7 million remaining unused commitment as of December 31, 2024, 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 7), limiting future access to capital.

While these debt

and equity transactions provided additional funding towards these projects and other obligations, the Company still carried approximately

$8.9 million of negative working capital at period end 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.

has committed financial support from Phil Mulacek who owns approximately 21.2% of our common stock outstanding as of December 31,

2024, and Energy Evolution, our largest stockholder who owns approximately 31.9% of our common stock outstanding as of December 31,

Both are related parties of the Company (see Note 14).

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 in evaluating

FASB 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 within one year after the date the financial statements are issued.

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.

has completed 13 wells in North Dakota related to our Starbuck Drilling Program during the year ended December 31, 2024.

February 16, 2024, Empire issued a Promissory Note to Energy Evolution, a related party.

Energy Evolution advanced Empire $5.0 million.

On May 24, 2024, Energy Evolution elected to convert the Note to shares of common stock of Empire and received 800,000 shares under the

terms of the Promissory Note.

See Note 7 for further details.

April 2024, the Company completed a subscription rights offering (the "April Rights Offering”) which raised gross proceeds

of approximately $20.7 million.

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.

April 9, 2024, Empire partially exercised a purchase option originally issued on August 9, 2023, (the "Purchase Option”) to

acquire additional working interests in certain of Empire’s New Mexico properties from Energy Evolution.

The additional assets

acquired represent approximately 60% of the total assets collectively acquired by Empire and Energy Evolution in the third quarter of

2023 (the "Option Assets”).

As consideration, upon closing of the partial exercise of the Purchase Option, 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 which was 60% of the purchase price of $5.0 million under the Purchase Option.

August 8, 2024, Empire successfully extended the Purchase Option with the issuance of 16,800 shares of common stock to Energy Evolution

to obtain the right to acquire the remaining Option Assets for an exercise price of $2.0 million subject to certain adjustments and payable

in cash, unless the parties agree that some or all may be paid by issuance of common stock to Energy Evolution.

The Purchase Option expires

on August 9, 2026.

November 2024, Empire completed a subscription rights offering (the "November Rights Offering”) which raised gross proceeds

of $10.0 million.

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.

November 18, 2024, the Company entered into the First Amendment to the Credit Facility (the “First Amendment”) to increase

the initial maximum revolver commitment to $20.0 million through December 29, 2026.

See Note 7 for further details.

and Operating Data

following table sets forth a summary of our production and operating data:

For the Years Ended December 31,

Production and operating data:

11 unchanged sentences

Stock-based compensation

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

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.

Results of Operations

The following table reflects our summary operating information.

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.

Years Ended December 31,

Total General & administrative

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

of Operations

following table reflects our summary of operating information.

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

For the Years Ended December 31,

Natural gas revenues

8 unchanged sentences

Non-cash interest expense

Operating Income (Loss)

Operating Loss

(13,665,457 )

(11,625,091 )

Net Income (Loss)

(16,197,989 )

(12,469,605 )

A percentage calculation is

not meaningful due to change in signs, a zero-value denominator or a percentage change greater than 200.

Revenues for 2023 decreased compared to the prior

year primarily due to lower realized oil, natural gas and NGL prices and lower NGL volumes, partially offset by higher oil volumes in

North Dakota.

Realized oil prices for 2023, were approximately $75.19

per barrel, while realized prices for the prior year were approximately $93.16 per barrel, a decrease in price of approximately 19%.

volumes were higher by approximately 5,000 barrels primarily due to increased production in North Dakota partially offset by lower production

in New Mexico.

Realized natural gas prices for 2023, were approximately

$2.02 per Mcf, while realized prices for the prior year were approximately $5.18 per Mcf, a decrease in price of approximately 61%.

Realized NGL prices for 2023, were approximately $12.21

per barrel, while realized prices for the prior year were approximately $22.76 per barrel, a decrease in price of approximately 46%.

sales volumes were lower in 2023 compared to 2022 primarily due to lower volumes in New Mexico.

Lease Operating Expense and Production Taxes

Lease operating expense was higher in 2023 primarily

due to higher workover activities.

Lease operating expense includes approximately $12.0 million of workover expense for 2023 as compared

to approximately $7.9 million for 2022.

Workover expense in New Mexico increased due in part to a higher level of compliance-related activities.

In addition, workover expense in North Dakota was higher for 2023 as the Company continued to work over wells in the state to enhance

production alongside capital recompletions and sidetrack drilling started in 2022.

Production taxes were lower for 2023 compared to 2022

as a result of the lower product revenues discussed above.

Depreciation, Depletion, Amortization and Accretion

and Impairment

The higher DD&A in 2023 as compared to 2022 primarily

related to a higher depletable basis from capital expenditures in 2023.

Accretion expense was higher in 2023 as the overall obligation

increases over time.

We assess our oil and gas properties for impairment

when circumstances indicate the carrying value may be greater than its estimated future net cash flows.

In 2022, estimated future cash

flows from our properties in Louisiana were less than the net book value.

As a result, we recorded a $936,000 impairment expense.

General and Administrative Expense (excluding stock-based

compensation)

General and Administrative Expense (excluding stock-based

compensation) increased primarily due to higher employee expenses related to increased headcount in 2023 compared to 2022 and $505,000

related to severance expense for two executives in 2023 (See Note 14 of Notes to Consolidated Financial Statements).

Board compensation

expense, exclusive of stock-based compensation, was approximately $588,000 in 2023 as compared to $388,000 in 2022.

In addition, 2023

expenses were higher due to legal costs related to potential financing transactions and compliance work related to our New Mexico operations.

In 2022, we recognized expenses totaling approximately $1,269,000 in conjunction with resolution of a Texas sales tax audit for prior

periods for which the initial assessment was received in April 2022.

This total includes consulting fees and an accrual for $528,000 for

the final settlement which was paid in 2023.

Stock-based Compensation

We utilize stock-based compensation to compensate

members of management and retain talented personnel.

Our stock-based compensation increased in 2023 due to a higher number of awards in

We anticipate stock-based compensation to continue to be utilized in 2024 and beyond to attract and retain talented personnel and

compensate our board members and consultants.

Interest Expense

Cash-based interest expense increased as higher interest

rates were partially offset by a lower outstanding balance under our Credit Facility.

We have minimal interest-bearing vehicle and equipment

notes payable.

Non-cash interest expense is primarily attributable

to the related party note payable as described in Note 7 of Notes to Consolidated Financial Statements.

In addition, 2023 includes interest

from $10,000,000 of bridge loans from related parties that were subsequently converted to equity (See Note 15 of Notes to Consolidated

Financial Statements).

We have generated net operating losses since inception,

which would normally reflect a tax benefit in the consolidated statement of operations and a deferred asset on the consolidated balance

However, because of the current uncertainty as to our ability to achieve sustained profitability and the potential limitation of

NOL carryforwards, a valuation reserve has been established that offsets the amount of any tax benefit available for each period presented

in the consolidated statements of operations.

For 2023, we had a loss before income taxes for which

the tax benefit was offset by a change in valuation allowance.

For 2022, we had income before income taxes which resulted in a tax

provision that was offset by a change in the valuation allowance due to the anticipated use of the NOL carryforward and intangible drilling

for 2024 increased compared to prior year primarily due to higher oil volumes in North Dakota due to our Starbuck Drilling Program

partially offset by a slight overall decline in commodity prices.

oil prices for 2024 were approximately $71.44 per barrel, while realized prices for the prior year were approximately $75.19 per barrel,

a decrease in price of approximately 5%.

Oil volumes were higher by approximately 93,000 barrels or 19% primarily due to new wells completed

in North Dakota during the third quarter of 2024 as well as the acquisition of additional working interest in New Mexico.

natural gas prices for 2024 were approximately $0.37 per Mcf, while realized prices for the prior year were approximately $2.02 per Mcf,

a decrease in price of approximately 82%.

This is primarily due to the depressed natural gas prices in the third quarter of 2024 in New

NGLs prices for 2024 were approximately $14.21 per barrel, while realized prices for the prior year were approximately $12.21 per barrel,

an increase in price of approximately 16%.

Operating Expense and Production Taxes

operating expense was lower in 2024 primarily due to lower workover activities partially offset by higher expenses related to an increase

in production.

Lease operating expense includes approximately $5.9 million of total workover expense for 2024 as compared to approximately

$12.0 million for 2023.

The higher workover expense in 2023 was primarily in New Mexico as Empire continued to work over wells in the

region to enhance and maintain production.

taxes were higher for 2024 compared to 2023 as a result of the higher product revenues discussed above.

Depreciation,

Depletion, Amortization, Accretion and Impairment

higher DD&A in 2024 as compared to 2023 is due in part to the increase in production, the acquisition of additional working interest

in New Mexico as well as the impact of the capitalized costs associated with the new drilling activity as part of our Starbuck Drilling

Program in North Dakota.

Accretion also increased slightly from prior period due to the new drilling activity.

assess our oil and gas properties for impairment when circumstances indicate the carrying value may be greater than its estimated future

net cash flows.

There was no impairment recorded during the years ended December 31, 2024 and 2023.

and Administrative Expense (excluding stock-based compensation)

and Administrative Expense (excluding stock-based compensation) increased primarily due to an increase in salaries and benefits associated

with an increase in employee headcount.

utilize stock-based compensation to compensate members of management and retain talented personnel.

Our stock-based compensation decreased

in 2024 due to a lower number of awards in 2024.

We anticipate stock-based compensation to continue to be utilized in 2025 and beyond

to attract and retain talented personnel and compensate our board members and consultants.

interest expense increased slightly due to a higher outstanding balance under our Credit Facility partially offset by lower interest

We have minimal interest-bearing vehicle and equipment notes payable.

interest expense is primarily attributable to the conversion to equity of the related party note payable as described in Note 7 of Notes

to Consolidated Financial Statements.

have generated net operating losses since inception, which would normally reflect a tax benefit in the consolidated statement of operations

and a deferred asset on the consolidated balance sheet.

However, because of the current uncertainty as to our ability to achieve sustained

profitability and the potential limitation of NOL carryforwards, a full valuation allowance has been established that offsets the amount

of any tax benefit available for each period presented in the consolidated statements of operations.

had a loss before income taxes for 2024 and 2023, respectively, which the tax benefit was offset by a change in the valuation allowance.

For 2024 and 2023, our effective tax rates were 0% and 1%, respectively.

As noted below, our working capital is negative as of December 31, 2023 and is primarily a result of a higher level of payables related

to capital spending in North Dakota.

In addition, the Company was not in compliance with the current ratio covenant under its Credit Facility

as of December 31, 2023;

however, the Company obtained a compliance waiver from the lender for December 31, 2023.

As of December 31, 2023,

we had approximately $8 million in cash on hand and approximately $5.5 million available on the Credit Facility.

For additional information

regarding the Credit Facility, see Note 7 of Notes to Consolidated Financial Statements.

The Company will require additional funds to

satisfy these payables related to the capital spending program which are greater than estimated cash flows from operations over the next

Management has initiated plans to raise the necessary funds including the commencement of a rights offering expected to raise

up to approximately $20.66 million (see Note 18 of Notes to Consolidated Financial Statements).

Phil Mulacek and Energy Evolution Master

Funds, Ltd, both related parties of the Company and largest shareholders collectively owning 46% of the common shares outstanding, have

indicated that they intend to participate in the rights offering and fully subscribe to the shares of Common Stock corresponding to their

subscription rights and intend to exercise their over-subscription rights.

See Note 1 - Liquidity and Going Concern of Notes to Consolidated

Financial Statements for further discussion of management’s plans.

We expect to incur costs related to drilling activities in core areas.

It is expected that management will use a combination of cash on hand and cash flows from operations as well as seeking additional debt

or equity funding to fund these ongoing activities.

Working Capital

Working capital (presented below) was $(6.3) million

as of December 31, 2023 compared to $5.1 million as of December 31, 2022, representing a change of approximately $(11.4) million.

change was primarily driven by payables related to the Starbuck Drilling Program.

noted below, our working capital is negative as of December 31, 2024, which is primarily the result of a lower cash balance due to capital

spending as part of our Starbuck Drilling Program and return-to-production efforts in Texas.

As of December 31, 2024, we had approximately

$2.3 million in cash on hand and approximately $8.7 million available under our Credit Facility.

Empire will require additional funds

to satisfy the payables discussed above which are greater than estimated cash flows from operations over the next 12 months.

and Energy Evolution, both related parties of Empire and our largest two stockholders, owning 21.2% and 31.9%, respectively, of the common

shares outstanding as of December 31, 2024, 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.

In addition to the April Rights Offering and November Rights

Offering, 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 Consolidated Financial Statements for further discussion of management’s

expects to continue to incur costs related to drilling activities in core areas as well as future oil and natural gas acquisitions in

During 2024, Empire has incurred approximately $42.2 million of additions to oil and natural gas properties, primarily related

to the drilling program in the Starbuck field of North Dakota.

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.

capital is presented in the table below.

The decrease of approximately $2.6 million was primarily driven by a lower cash balance due

to increased capital spending related to the Starbuck Drilling Program in North Dakota.

As of December 31,

3 unchanged sentences

$ (8,919,526 )

Year Ended December 31,

$ (6,304,668 )

following table summarizes our statements of cash flows:

For the Years Ended December 31,

Cash flows provided by (used in):

1 unchanged sentence

$ (9,887,500 )

$ (27,943,283 )

Investing activities

1 unchanged sentence

(14,767,339 )

(39,102,122 )

Financing activities

Cash Flows from Operating Activities

Cash flows from operating activities in 2023 was impacted

by lower commodity prices and higher operating expenses compared to 2022, partially offset by higher oil volumes.

Cash flow from operating

activities in 2022 benefited from higher commodity prices and higher natural gas and NGL volumes.

Cash Flows from Investing Activities

Cash flows from investing activities in 2023 includes

approximately $25 million of additions to oil and gas properties primarily due to the development of our operations in North Dakota, partially

offset by approximately $9.9 million for a change in accounts payable related to capital expenditures.

In 2022, we had approximately $11.4

million of additions to oil and gas properties primarily, partially offset by approximately $1.2 million for a change in accounts payable

related to capital expenditures.

In 2022, we began recompletions and other capitalizable efforts in multiple states as we sought to bring

production online from existing wells and bring on new production from sidetrack drilling in North Dakota which led to an increase in

additions to oil and natural gas properties in 2022.

We also participated in the drilling of four non-operated wells through Empire Rockies

Region in 2022 spending approximately $600,000.

In 2022, we were able to negotiate for the release

of the sinking fund requirement.

Approximately $2.8 million and $2 million of the sinking fund balance was returned to us in 2023 and

2022, respectively.

In addition, 2023 includes $2 million related to the

acquisition of additional interest in our New Mexico oil and gas properties compared to $2.7 million of acquisitions in 2022.

Cash Flows from Financing Activities

In 2023, we received $10 million from related parties

in the form of bridge loans which were subsequently converted to our common shares (See Note 15 of Notes to Consolidated Financial Statements).

In 2023, we entered into a new revolving line of credit

with Equity Bank (See Note 7 of Notes to Consolidated Financial Statements) and used approximately $4.5 million to retire the outstanding

balance of our previous revolving line of credit with CrossFirst Bank.

Principal payments made on our revolving line of credit with CrossFirst

Bank were approximately $1.5 million and $1.2 million in 2023 and 2022, respectively.

In 2023, we received approximately $12.5 million from

stock issuances and warrant exercises.

In 2022, we received approximately $3.4 million in cash from warrant exercises.

Capital Resources

Capital Expenditures

Flows from Operating Activities

impact of higher oil production and lower workover expenses in 2024 compared to 2023 contributed to the increase in cash flows from operating

Flows from Investing Activities

flows from investing activities in 2024 include approximately $42.2 million of additions to oil and gas properties compared to approximately

$25.0 million in 2023 primarily due to the development of our operations as part of our Starbuck Drilling Program in North Dakota.

2023, we received approximately $2.8 million due to the release of a negotiated sinking fund requirement and acquired additional interest

in our New Mexico oil and gas properties for approximately $2.0 million.

Flows from Financing Activities

flow from financing activities in 2024 include proceeds from the April Rights Offering and the November Rights Offering of approximately

$30.5 million, net of transaction costs (see Note 9).

In addition, cash flows from financing activities in 2024 include $5.0 million

from a promissory note issued by the Company to a related party and approximately $6.7 million borrowed on the Credit Facility (see Note

2024, we received approximately $0.6 million from stock issuances and warrant exercises.

In 2023, we received approximately $12.5 million

from stock issuances and warrant exercises.

primary sources of short-term liquidity are cash and cash equivalents, net cash provided by operating activities, 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.

2024, Empire incurred approximately $42.2 million of additions to oil and natural gas properties which primarily reflects continued drilling

and completions activity related to our Starbuck Drilling Program in North Dakota.

For 2023, additions to oil and natural gas properties

totaled $27.0 million including $2.1 million related to acquisitions.

The $25 million not related to acquisitions primarily reflects development

of our North Dakota operations.

We anticipate capital expenditures in 2024 that will be funded with cash on hand, cash flows from operations,

debt, and/or equity issuances.

Related Party Transactions

In 2023, we received $10 million in bridge loan funds

from Phil Mulacek and Energy Evolution Master Fund, Ltd., related parties, which were subsequently converted to our common shares.

addition, we sold shares to both parties and received $5 million in proceeds from each party.

Both transactions are described further

in Note 15 of Notes to Consolidated Financial Statements.

These transactions were related party transactions for accounting purposes.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Estimates

The preparation of financial statements in conformity

with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the

reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities.

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

In our management’s opinion, the more significant reporting areas impacted by management’s judgments and estimates

are as follows:

Successful Efforts Method of Accounting for Oil

and Natural Gas Activities

We use the successful efforts method of accounting

for oil and natural gas operations.

Under this method, costs to acquire oil and natural gas properties, drill successful exploratory wells,

drill and equip development wells, and install production facilities are capitalized.

Estimated proved oil and natural gas reserves, management’s

outlook on commodity prices and projected future cash flows of oil and natural gas reserves are a significant part of our financial calculations.

Following are examples of how these estimates affect financial results:

· an increase (decrease) in estimated proved oil, natural gas and NGL reserves

can reduce (increase) our unit-of-production depletion and amortization rates;

· changes in the oil, natural gas and NGL reserves and the projected future

cash flows from our properties can impact our periodic impairment analyses.

Proved oil and natural gas reserves are the

estimated quantities of oil, natural gas and NGLs which geological and engineering data demonstrate with reasonable certainty to be recoverable

in future periods from known reservoirs under existing economic and operating conditions.

Reserve quantities and future cash flows included

in this report are prepared in accordance with guidelines established by the SEC and the Financial Accounting Standards Board (“FASB”).

The approximate $25.0 million not related to acquisitions primarily

reflects development of our North Dakota operations.

Party Transactions

times the Company may enter into transactions with related parties.

These transactions primarily occur with our two largest shareholders,

Phil Mulacek and Energy Evolution, and are approved by the board of directors.

See Note 14 for further discussion on related party activity

during the year.

Sheet Arrangements

do not have any off-balance sheet arrangements.

Accounting Estimates

preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”)

requires management to use judgment to make estimates and assumptions that affect certain amounts reported in the consolidated financial

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 year ended December 31, 2024.

In our management’s

opinion, the more significant reporting areas impacted by management’s judgments and estimates are as follows:

Efforts Method of Accounting for Oil and Natural Gas Activities

use the successful efforts method of accounting for oil and natural gas operations.

Under this method, costs to acquire oil and natural

gas properties, drill successful exploratory wells, drill and equip development wells, and install production facilities are capitalized.

Estimated proved oil and natural gas reserves, management’s outlook on commodity prices and projected future cash flows of oil

and natural gas reserves are a significant part of our financial calculations.

The following are examples of how these estimates affect

financial results:

increase (decrease) in estimated proved oil, natural gas and NGLs reserves can reduce (increase)

our unit-of-production depletion and amortization rates;

in the oil, natural gas and NGLs reserves and the projected future cash flows from our properties

can impact our periodic impairment analysis.

oil and natural gas reserves are the estimated quantities of oil, natural gas and NGLs which geological and engineering data demonstrate

with reasonable certainty to be recoverable in future periods from known reservoirs under existing economic and operating conditions.

Reserve quantities and future cash flows included in this report are prepared in accordance with guidelines established by the SEC and

The accuracy of reserve estimates is a function of:

· The quality and quantity of available data;

· The interpretation of that data;

· The accuracy of various mandated economic assumptions;

· The judgments of the persons preparing the estimates.

Proved reserves information included in this

report is based on estimates prepared by independent petroleum engineers, Cawley Gillespie &Associates.

The independent petroleum

engineers evaluated 100% of our estimated proved producing reserve quantities and their related future net cash flows as of December 31,

quality and quantity of available data;

interpretation of that data;

accuracy of various mandated economic assumptions;

judgments of the persons preparing the estimates.

reserves information included in this report is based on estimates prepared by independent petroleum engineers, CG&A.

The independent petroleum engineers evaluated 100% of our estimated proved producing reserve quantities and their

related future net cash flows as of December 31, 2024.

Estimates prepared by others may be higher or lower than these estimates.

Because these estimates depend on many assumptions, all

of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that

are ultimately recovered.

Management may make revisions to reserve estimates throughout the year as additional information becomes available.

Such changes could trigger an impairment of our oil and natural gas properties and have an impact on our depletion expense prospectively.

For example, a change of 10 percent in our total proved reserves could change our annual depletion and amortization expense by $350,000.

The actual impact would depend on the specific areas impacted.

Impairment of Oil and Gas Properties

We assess our proved properties for impairment

using estimates of future undiscounted cash flows.

This assessment requires significant judgment and assumptions including commodity

price outlooks, estimates of reserve quantities, expected lease operating costs and capital costs.

An impairment expense could

result if oil and gas prices decline in the future as it may not be economic to develop some of these unproved properties.

performed an assessment as of December 31, 2023 and did not identify any impairments.

Asset Retirement Obligation

Asset retirement obligations (“AROs”)

consist primarily of estimated future costs associated with the plugging and abandonment of oil and natural gas wells, removal of equipment

and facilities from leased acreage, and land restoration in accordance with applicable local, state and federal laws.

The discounted fair

value of an ARO liability is required to be recognized in the period in which it is incurred, with the associated asset retirement cost

capitalized as part of the carrying cost of the oil and natural gas asset.

The recognition of an ARO requires that management make numerous

assumptions regarding such factors as the estimated probabilities, amounts and timing of settlements;

the credit-adjusted risk-free rate

Because these estimates depend on many assumptions, all of which may differ substantially from actual results, reserve estimates may

be different from the quantities of oil and natural gas that are ultimately recovered.

Management may make revisions to reserve

estimates throughout the year as additional information becomes available.

Such changes could trigger an impairment of our oil and

natural gas properties and have an impact on our depletion expense prospectively.

For example, a change of 10 percent in our total

proved reserves could change our annual depletion expense by approximately $0.9 million.

The actual impact would depend on the

specific areas impacted.

of Oil and Gas Properties

assess our proved properties for impairment using estimates of future undiscounted cash flows.

This assessment requires significant judgment

and assumptions including commodity price outlooks, estimates of reserve quantities, expected lease operating costs and capital costs.

An impairment expense could result if oil and gas prices decline in the future as it may not be economic to develop some of these unproved

We performed an assessment as of December 31, 2024 and 2023, and did not identify any impairments, respectively.

Retirement Obligation

retirement obligations (“ARO”) consist primarily of estimated future costs associated with the plugging and abandonment of

oil and natural gas wells, removal of equipment and facilities from leased acreage, and land restoration in accordance with applicable

local, state and federal laws.

The discounted fair value of an ARO liability is required to be recognized in the period in which it is

incurred, with the associated asset retirement cost capitalized as part of the carrying cost of the oil and natural gas asset.

The recognition

of an ARO requires that management make numerous assumptions regarding such factors as the estimated probabilities, amounts and timing

of settlements;

the credit-adjusted risk-free rate to be used;

inflation rates;

and future advances in technology.

In periods subsequent to the initial measurement of the ARO, we must recognize

period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original

estimate of undiscounted cash flows.

Stock-Based Compensation

We recognize stock-based compensation expense associated

with restricted stock units and options.

We account 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 our common stock on the grant date.

Stock-based compensation

related to options is the fair value of the option recognized over the vesting period.

The fair value of an option is determined using

the Black-Scholes option valuation with the following assumption inputs:

dividend yield, expected annual volatility, risk free interest

rate and an expected life.

Income Taxes and Uncertain Tax Positions

Our tax provision is based upon the tax laws and rates

in effect in the applicable jurisdiction in which operations are conducted and income is earned.

As part of the process of preparing the

consolidated financial statements, management is required to estimate the income tax provision.

This process involves estimating the actual

current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation,

amortization and certain accrued liabilities for tax and accounting purposes.

Deferred tax expense or benefit represents the change

in the balance of deferred tax assets or liabilities.

Valuation allowances are established to reduce deferred tax assets when it is more

likely than not that some portion or all of the deferred tax assets will not be realized.

At December 31, 2023 and 2022, a valuation allowance

for deferred tax assets was recorded.

Management applies the accounting standards related

to uncertainty in income taxes.

This accounting guidance clarifies the accounting for uncertainties in income taxes by prescribing a minimum

recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements.

that we recognize in the consolidated financial statements the financial effects of a tax position, if that position is more likely than

not of being sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits

of the position.

It also provides guidance on measurement, classification, interest, penalties and disclosure.

We have no uncertain tax

positions at either December 31, 2023 or December 31, 2022.

In periods subsequent

to the initial measurement of the ARO, we must recognize period-to-period changes in the liability resulting from the passage of time

and revisions to either the timing or the amount of the original estimate of undiscounted cash flows.

recognize stock-based compensation expense associated with restricted stock units and options.

We account 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

our common stock on the grant date.

Stock-based compensation related to options is the fair value of the option recognized over the vesting

The fair value of an option is determined using the Black-Scholes option valuation with the following assumption inputs:

yield, expected annual volatility, risk free interest rate and an expected life.

Taxes and Uncertain Tax Positions

tax provision is based upon the tax laws and rates in effect in the applicable jurisdiction in which operations are conducted and income

As part of the process of preparing the consolidated financial statements, management is required to estimate the income tax

This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from

differing treatment of items, such as depreciation, amortization and certain accrued liabilities for tax and accounting purposes.

tax expense or benefit represents the change in the balance of deferred tax assets or liabilities.

Valuation allowances are established

to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

At December 31, 2024 and 2023, a full valuation allowance for deferred tax assets was recorded.

applies the accounting standards related to uncertainty in income taxes.

This accounting guidance clarifies the accounting for uncertainties

in income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the

consolidated financial statements.

It requires that we recognize in the consolidated financial statements the financial effects of a

tax position, if that position is more likely than not of being sustained upon examination, including resolution of any appeals or litigation

processes, based upon the technical merits of the position.

It also provides guidance on measurement, classification, interest, penalties

and disclosure.

We had no uncertain tax positions at December 31, 2024, or December 31, 2023.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule

12b-2 of the Exchange Act and are not required to provide this information.

FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA.

The financial statements of the Company are set forth

at the end of this Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH

ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide this information.

STATEMENTS AND SUPPLEMENTARY DATA.

financial statements of the Company are set forth at the end of this Form 10-K.

IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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-K

Item 7. Management’s Discussion and Analysis