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Item 1. Financial Statements

2025-05-14 compared with 2024-11-13 · 759 added, 682 removed, 240 unchanged (86% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands, except share data)

Current Assets:

Accounts Receivable

Derivative Instruments

Total Current Assets

1 unchanged sentence

Oil and Natural Gas Properties, Successful Efforts

Accumulated Depreciation, Depletion and Impairment

( 29,561,539 )

( 22,996,805 )

Accumulated Depletion, Amortization and Impairment

Total Oil and Gas Properties, Net

2 unchanged sentences

Other Noncurrent Assets

$ 121,242,529

LIABILITIES AND STOCKHOLDERS' EQUITY

3 unchanged sentences

Current Portion of Lease Liability

Current Portion of Note Payable - Related Party (Note 8)

Current Portion of Long-Term Debt

6 unchanged sentences

Stockholders' Equity:

Series A Preferred Stock - $ 0.001 Par Value, 10,000,000 Shares

Authorized, 6 and 6 Shares Issued and Outstanding, Respectively

Series A Preferred Stock - $ 0.001 Par Value, 10,000,000 Shares Authorized,

6 and 6 Shares Issued and Outstanding, Respectively

Common Stock - $ 0.001 Par Value 190,000,000 Shares Authorized,

2 unchanged sentences

Accumulated Deficit

( 76,623,399 )

( 64,618,818 )

Total Stockholders' Equity

Total Liabilities and Stockholders' Equity

$ 121,242,529

See accompanying notes to unaudited

interim condensed consolidated financial statements.

See accompanying notes to unaudited interim condensed

consolidated financial statements.

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except share data)

For the Three Months Ended March 31,

Total Product Revenues

Gain (Loss) on Commodity Derivatives

( 1,185,921 )

( 1,319,401 )

Loss on Derivatives

Total Revenue

2 unchanged sentences

Production and Ad Valorem Taxes

Depletion, Depreciation & Amortization

Depreciation, Depletion & Amortization

Accretion of Asset Retirement Obligation

General and Administrative Expense:

General and Administrative Expense

General and Administrative:

General and Administrative

Stock-Based Compensation

Total General and Administrative Expense

Total Costs and Expenses

Total General and Administrative

Total Cost and Expenses

Operating Loss

( 3,416,603 )

( 2,633,902 )

( 9,740,056 )

( 7,158,122 )

Other Income and (Expense):

Interest Expense

( 1,246,575 )

Other Income (Expense) (Note 8)

( 1,017,950 )

Loss Before Income Taxes

( 3,639,614 )

( 2,882,348 )

( 12,004,581 )

( 7,806,848 )

Income Tax Benefit

$ ( 3,639,614 )

$ ( 2,747,628 )

$ ( 12,004,581 )

$ ( 7,672,128 )

Other Income (Expense)

Loss Before Taxes

Income Tax Benefit (Provision)

Net Loss per Common Share:

Weighted Average Number of Common Shares Outstanding:

See accompanying notes to unaudited

interim condensed consolidated financial statements.

See accompanying notes to unaudited interim

condensed consolidated financial statements.

EMPIRE PETROLEUM CORPORATION

1 unchanged sentence

STOCKHOLDERS' EQUITY

(in thousands)

Preferred Stock

Paid-in-Capital

Accumulated Deficit

Balances, December 31, 2024

$ ( 64,618,818 )

( 3,975,196 )

Stock-Based Compensation

Balances, March 31, 2025

$ 100,200,135

$ ( 68,594,014 )

( 4,389,771 )

Rights Offering (Note 10)

Conversion of Related-Party Note (Note 8)

Partial Conversion of Option to Purchase (Note 3)

Warrants Exercised (Note 10)

Stock-Based Compensation

Balances, June 30, 2024

$ 131,564,222

( 72,983,785 )

( 3,639,614 )

Conversion of Related-Party Note (Note 8)

Stock Issued for Purchase Option (See Note 3)

Stock-Based Compensation

Balances, September 30, 2024

$ 133,061,997

$ ( 76,623,399 )

Preferred Stock

Paid-in-Capital

Accumulated Deficit

Balances, December 31, 2023

$ ( 52,149,213 )

( 2,459,591 )

Impact of Former CEO settlement

( 2,126,131 )

Stock-Based Compensation

Balances, March 31, 2024

$ ( 54,608,804 )

( 2,464,909 )

Stock-Based Compensation

Balances, June 30, 2023

( 57,073,713 )

( 2,747,628 )

Warrants Exercised

Stock Issued for Purchase Option (See Note 3)

Stock-Based Compensation

Balances, September 30, 2023

$ ( 59,821,341 )

See accompanying notes to unaudited

interim condensed consolidated financial statements.

See accompanying

notes to unaudited interim condensed consolidated financial

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September

(in thousands)

For the Three Months Ended March 31,

Cash Flows From Operating Activities:

$ ( 12,004,581 )

$ ( 7,672,128 )

Adjustments to Reconcile Net Income (Loss) to Net Cash

Provided By (Used In) Operating Activities:

Adjustments to Reconcile Net Loss to Net Cash

Provided By Operating Activities:

Stock-Based Compensation

Amortization of Right of Use Assets

Depreciation, Depletion and Amortization

Depletion, Depreciation & Amortization

Accretion of Asset Retirement Obligation

Loss on Commodity Derivatives

Settlement on or Purchases of Commodity Derivative Instruments

Loss on Financial Derivatives (Note 8)

Amortization of Debt Discount on Convertible Notes

Loss on extinguishment of debt

Settlement on or Purchases of Derivative Instruments

Gain on Financial Derivatives (Note 8)

Gain on Sale of Other Fixed Assets

Change in Operating Assets and Liabilities:

Accounts Receivable

( 1,572,038 )

Inventory, Oil in Tanks

2 unchanged sentences

Accrued Expenses

( 3,732,113 )

Other Long-Term Assets and Liabilities

Net Cash Provided By (Used In) Operating Activities

( 5,957,231 )

Net Cash Provided By Operating Activities

Cash Flows From Investing Activities:

Acquisition of Oil and Natural Gas Properties

( 2,094,419 )

Additions to Oil and Natural Gas Properties (a)

( 48,758,831 )

( 5,596,535 )

Capital Expenditures - Oil and Natural Gas

Properties (1)

Disposal of Other Fixed Assets

Purchase of Other Fixed Assets

Cash Paid for Right-of-Use Assets

Sinking Fund Deposit

Net Cash Used In Investing Activities

( 49,274,023 )

( 5,519,179 )

Cash Flows From Financing Activities:

1 unchanged sentence

Proceeds from Promissory Note - Related Party (Note 8)

Proceeds from Rights Offering (Net of Transaction Costs) (Note 10)

Principal Payments of Debt

( 1,933,198 )

Net Proceeds from Warrant Exercise (Note 10)

Proceeds from Bridge Loans from Related Parties

Proceeds from Warrant Exercises

Net Cash Provided By Financing Activities

Net Cash (Used In) Provided By Financing Activities

Net Change in Cash

( 4,642,792 )

Cash - Beginning of Period

2 unchanged sentences

Cash Paid for Interest

(a) Incurred capital expenditures were $38,286,018 and $6,165,174 for the respective periods.

The differences

between incurred and cash capital expenditures is primarily due to changes in accounts payable related to capital expenditures.

See accompanying notes to unaudited

interim condensed consolidated financial statements.

EMPIRE PETROLEUM CORPORATION

NOTES TO UNAUDITED INTERIM CONDENSED

_____________________

(1) Incurred capital expenditures were approximately $2.6 million and $13.4 million for the respective

The differences between incurred and cash capital expenditures is due to changes in related accounts payable.

See accompanying notes to unaudited interim condensed

consolidated financial statements.

EMPIRE PETROLEUM CORPORATION

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Note 1 - Organization and Basis of Presentation

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

consisting of the following entities:

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

3 unchanged sentences

Empire NM Assets LLC

Empire Rockies Region

Empire North Dakota LLC (“Empire North Dakota”)

Empire North Dakota Acquisition LLC (“Empire NDA”)

Empire Texas (“Empire Texas”), consisting of

the following entities:

Empire North Dakota (“Empire North

Dakota”), consisting of the following entities:

Empire North Dakota LLC

Empire North Dakota Acquisition LLC (“Empire

Empire Texas (“Empire Texas”),

consisting of the following entities:

Empire Texas LLC

1 unchanged sentence

Empire Texas GP LLC

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

and 99% by Empire Texas LLC)

Empire Louisiana LLC (“Empire Louisiana”)

Pardus Oil & Gas Operating, LP (owned 1% by

Empire Texas GP LLC and 99% by Empire Texas LLC)

Empire Louisiana LLC (“Empire

Empire was incorporated in the State of Delaware

The consolidated financial statements include the accounts of Empire and its wholly-owned subsidiaries.

The terms “Company,”

“we,” “us,” “our,” and similar terms refer to Empire Petroleum Corporation and its subsidiaries.

The accompanying unaudited interim condensed

consolidated financial statements of Empire have been prepared in accordance with United States generally accepted accounting principles

The unaudited interim condensed consolidated financial statements include the accounts of Empire and its wholly-owned subsidiaries.

The terms “Company,” “we,” “us,” “our,” and similar terms refer to Empire Petroleum Corporation

and its subsidiaries.

The accompanying unaudited interim condensed consolidated

financial statements of Empire have been prepared in accordance with accounting principles generally accepted in the United States (“US

GAAP”) for interim financial information and the instructions to Form 10-Q.

Accordingly, they do not include all of the

information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments considered

necessary for a fair presentation of Empire's financial position, the results of operations, and the cash flows for the interim period

are included.

Accordingly, they do not include all of the information

and footnotes required by US GAAP for complete financial statements.

In the opinion of management, all adjustments considered necessary

for a fair presentation of Empire's financial position, the results of operations, and the cash flows for the interim period are included.

All intercompany accounts and transactions have been eliminated in consolidation.

All adjustments are of a normal, recurring nature.

Certain amounts in prior periods have been reclassified to conform to

current presentation.

Operating results for the interim period are not necessarily indicative of the results that may be expected for

the year ending December 31, 2024.

The information contained in this Form 10-Q should be read in conjunction

with the audited financial statements and related notes for the year ended December 31, 2023 which are contained in Empire's Annual Report

on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2024.

Operating results for the interim period are not necessarily indicative of the results that may be expected for the year ending December

The information contained in this Form 10-Q

should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2024, which are

contained in Empire's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 27,

Liquidity and Going Concern

Empire determined that it was not in compliance

with the current ratio covenant contained in its revolving line of credit agreement as of September 30, 2024 (see Note 8).

Upon discovering

this issue, Empire notified the lender to request a waiver.

The noncompliance is due to a higher level of payables related to the Starbuck Drilling Program in North Dakota.

On November 12, 2024, Empire obtained a compliance waiver from the lender for September 30, 2024.

Empire will require funds to be in compliance with the current ratio debt covenants and satisfy the payables discussed above which are

greater than estimated cash flows from operations over the next 12 months.

Empire initiated a plan to raise additional

funds for the payables discussed above as well as the additional capital spending in 2024 in the form of a subscription rights

equity offering, which was completed in November 2024 (see Note 10).

Empire also has the option to raise additional funds through

related party warrants, or a related party note payable that may or may not have conversion rights into shares of common stock of

These fundraising forms were and are supported through committed financial support from Phil Mulacek who owns approximately

20.3% of our common stock outstanding as of September 30, 2024, and Energy Evolution Master Fund, Ltd

(“Energy Evolution”), our largest stockholder who owns approximately 31.4% of our common stock outstanding as of September 30, 2024.

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

Mulacek and Energy Evolution have indicated

and are willing and able to provide these additional funds, if required, for Empire to continue to meet its obligations over the

next 12 months.

The Company has a

revolving line of credit agreement (Note 8) with Equity Bank which requires the Company to maintain compliance with certain

financial covenants computed on a quarterly and annual basis.

As of March 31, 2025, the Company was in compliance with all required

covenants and projected to be in compliance with all debt covenants over the next 12 months.

However, the Company carried a negative

working capital of approximately $12.4 million as of March 31, 2025, an overall decline of approximately $3.5 million from the end

Cash on hand also declined approximately $1.2 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 continues to incur working capital costs along with

continued unforeseen operational costs from the Company’s return-to-production program in Texas started in the fourth quarter

Additionally, the Company had five wells down in North Dakota due to redrilling which caused production to be down during

the first quarter of 2025 further reducing cash flows.

This along with the additional costs contributed to the overall negative

financial trend.

To meet its obligations, the Company increased its revolver commitment to $20.0 million in November 2024 which had

approximately $7.8 million remaining unused commitment as of March 31, 2025, which can be used for future obligations;

subsequent to March 31, 2025, the Company borrowed an additional $3.0 million under the revolver.

Additionally, the revolver

commitment is reduced monthly by $0.25 million commencing on December 31, 2024 (See Note 8), limiting future access to capital.

While the revolver provides additional funding towards the Company’s obligations, the Company still carried approximately

$12.4 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.

Empire has committed financial support from Phil Mulacek who owns approximately

21.1% of our common stock outstanding as of March 31, 2025, and Energy Evolution Master Fund, Ltd.

(“Energy Evolution”),

our largest stockholder who owns approximately 31.8% of our common stock outstanding as of March 31, 2025.

Both are related parties of

the Company (see Note 13).

Mulacek and Energy Evolution are willing and able to provide these additional funds, if required, for

Empire to continue to meet its obligations over the next 12 months.

These additional funds may be raised through related party warrants,

or a related party note payable that may or may not have conversion rights into shares of common stock of Empire.

Management has considered these plans, including

1 unchanged sentence

Codification (“ASC”) 205-40, Presentation of Financial Statements - Going Concern .

Management believes the above

actions are sufficient to allow Empire to meet its obligations as they become due for a period of at least 12 months from the issuance

of these financial statements.

Management believes that its plans, and support from the existing related-party stockholders discussed

above, is probable and has alleviated the substantial doubt regarding Empire’s ability to continue as a going concern.

Management believes the above actions

are sufficient to allow Empire to meet its obligations as they become due for a period of at least 12 months from the issuance of these

financial statements.

Management believes that its plans, and support from the existing related-party stockholders discussed above, is

probable and has alleviated the substantial doubt regarding Empire’s ability to continue as a going concern.

Note 2 – Summary of Significant Accounting

Significant Accounting Policies

During the nine months ended September

30, 2024, Empire added one significant accounting policy and estimate relating to convertible debt and derivative liability.

this, there have been no material changes to significant accounting policies and estimates from the information provided in the Form

10-K for the year ended December 31, 2023.

There have been no material changes

to significant accounting policies and estimates from the information provided in the Form 10-K for the year ended December 31, 2024.

Principles of Consolidation

The unaudited interim condensed consolidated

financial statements include the accounts and balances of the Company and have been prepared in accordance with US GAAP.

All intercompany

accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity

with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying

Actual results could differ from those estimates.

Estimated quantities of crude oil, natural gas and

natural gas liquids (“NGLs”) reserves are the most significant of the Company’s estimates.

All reserve data used in

the preparation of the unaudited interim condensed consolidated financial statements, including depletion, are based on estimates.

engineering is a subjective process of estimating underground accumulations of crude oil, natural gas and NGLs.

There are numerous uncertainties

inherent in estimating quantities of proved crude oil, natural gas and NGLs reserves.

The accuracy of any reserve estimate is a function

of the quality of available data and of engineering and geological interpretation and judgment.

As a result, reserve estimates may be

different from the quantities of crude oil, natural gas and NGLs that are ultimately recovered.

Other items subject to estimates and assumptions

include, but are not limited to, the carrying amounts of property, plant and equipment, asset retirement obligations, valuation allowances

for deferred income tax assets, and valuation of derivative instruments.

Management evaluates estimates and assumptions on an ongoing

basis using historical experience and other factors, including the current economic and commodity price environment.

The volatility of

commodity prices results in increased uncertainty inherent in such estimates and assumptions.

Although management believes these estimates

are reasonable, actual results may differ from estimates and assumptions of future events and these revisions could be material.

production may vary materially from estimated oil and natural gas proved reserves.

Actual future prices may vary significantly from price

assumptions used for determining proved reserves and for financial reporting.

Accounts Receivable

Accounts receivable include estimated amounts due

from crude oil, natural gas, and NGLs purchasers and from non-operating working interest owners.

Accrued revenue related to product sales

from purchasers and operators are due under normal trade terms, generally requiring payment within 60 days of production.

For receivables

from joint interest owners, the Company generally has the ability to withhold future revenue disbursements to recover any non-payment

of joint interest billings.

Receivables are stated at amounts

due, net of an allowance for credit losses, if necessary, and are considered past due if full payment is not received by the contractual

The Company estimates uncollectible amounts based on the length of time that the accounts receivable has been outstanding,

historical collection experience and current and future economic and market conditions, if failure to collect is expected to occur.

due accounts are generally written off against the allowance for credit losses account only after all collection attempts have been exhausted.

The Company did not have an allowance for credit losses as of March 31, 2025.

Inventory primarily consists

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

Concentrations of Credit

Empire’s accounts receivable are primarily

receivables from oil and natural gas purchasers and joint interest owners.

The oil and natural gas purchasers consist primarily of independent

marketers, major oil and natural gas companies and gas pipeline companies.

Historically, the Company has not experienced any significant

losses from uncollectible accounts from its oil and natural gas purchasers.

The Company operates a substantial portion of its oil and

natural gas properties.

As the operator of a property we make full payments for costs associated with the property and seek reimbursement

from the other working interest owners in the property for their share of those costs.

Joint operating agreements govern the operations

of an oil or natural gas well and, in most instances, provide for the offsetting of amounts payable or receivable between the Company

and its joint interest owners.

Our joint interest partners consist primarily of independent oil and natural gas producers.

and natural gas exploration and production industry in general were adversely affected, the ability of the joint interest partners to

reimburse Empire could be adversely affected.

Convertible Debt and Derivative

In connection with Empire’s

issuance of a Promissory Note in the first quarter of 2024, Empire bifurcated the embedded conversion option, and recorded the embedded

conversion option as a long-term derivative liability in Empire’s unaudited interim condensed consolidated balance sheets in accordance

with FASB ASC 815, Derivatives and Hedging .

The convertible debt and the derivative liability associated with the Promissory Note

were presented on the unaudited interim condensed consolidated balance sheets as the Long-Term note payable – related party and

long-term derivative instruments.

The convertible debt was carried at amortized cost.

The derivative liability was remeasured at each

reporting period using a binomial lattice model with changes in fair value recorded in the unaudited interim condensed consolidated statements

of operations in other income (expense).

The conversion option related to the Promissory Note was exercised in the second quarter of

In connection with Empire’s issuance of a promissory

note (Note 8) in the first quarter of 2024, Empire bifurcated the embedded conversion option and recorded the embedded conversion option

as a long-term derivative liability in Empire’s unaudited interim condensed consolidated balance sheets in accordance with Financial

Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging .

The convertible debt and the derivative liability associated with the promissory note were separately presented as long-term note payable

– related party and long-term derivative instruments on the consolidated financial statements for the applicable periods.

The convertible

debt was carried at amortized cost.

The derivative liability was remeasured at each reporting period using a binomial lattice model with

changes in fair value recorded in other income (expense) of the applicable period’s consolidated statements of operations.

conversion option related to the promissory note was exercised in the second quarter of 2024.

See Note 8 for further details.

The Company enters into hedge agreements to manage

its exposure to oil and natural gas price fluctuations.

The fair value of derivative contracts is recognized as an asset or liability

on the Company’s consolidated balance sheets.

Realized gain or loss is recognized as a component of revenue when the derivative

contracts mature.

For contracts which have not matured, an unrealized gain or loss is recorded based on the change in the fair value

of the outstanding contracts.

Oil and Natural Gas

and Other Properties

The Company uses the successful

efforts method of accounting for its oil and gas activities.

Costs incurred are deferred until exploration and completion results are

At such time, costs of activities with economically recoverable reserves are capitalized as proven properties, and costs of

unsuccessful or uneconomical activities are expensed.

Exploration drilling costs are expensed if recoverable reserves are not found.

Costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred.

or retirement of oil and natural gas properties, the costs and related accumulated depletion and amortization are eliminated from the

accounts and the resulting gain or loss is recognized.

Capitalized drilling costs

are reviewed periodically for impairment.

Costs related to impaired prospects or unsuccessful exploratory drilling are charged to expense.

Management's assessment of the results of exploration activities, commodity price outlooks, planned future sales or expiration of all

or a portion of such leaseholds impact the amount and timing of impairment provisions.

An impairment expense could result if oil and

gas prices decline in the future as it may not be economical to develop some of these unproved properties.

Lease options are capitalized

as unproved property acquisition costs and are reviewed for impairment if indicators exist that the carrying value of the lease option

may not be recoverable.

If the lease options become impaired, expire or are abandoned, the options will be expensed.

If proved reserves

are discovered after the options are exercised, these costs will be reclassified as proved property.

Depletion and amortization

of producing properties is computed on the units-of-production method on a property-by-property basis.

The units-of-production

method is based primarily on estimates of proved reserve quantities.

Due to uncertainties inherent in this estimation process, it is

at least reasonably possible that reserve quantities will be revised in the near term.

Changes in estimated reserve quantities are

applied to depletion and amortization computations prospectively.

Other property and equipment

is depreciated on the straight-line method.

Revenue Recognition

The Company’s revenues

are comprised solely of revenues from customers and include the sale of oil, natural gas and NGLs.

The Company believes that the disaggregation

of revenue into these three major product types, as presented in the consolidated statements of operations, appropriately depicts how

the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors based on its single geographic

region, the continental United States.

Revenues are recognized at a point in time when production is sold to a purchaser at a determinable

price, delivery has occurred, control has transferred and it is probable substantially all of the consideration will be collected.

Company fulfills its performance obligations under its customer contracts through delivery of oil, natural gas and NGLs and revenues

are recorded on a monthly basis.

The Company receives payment from one to three months after delivery.

Generally, each unit of product

represents a separate performance obligation.

The prices received for oil, natural gas and NGLs sales under the Company’s contracts

are generally derived from stated market prices which are then adjusted to reflect deductions including transportation, fractionation

and processing.

As a result, revenues from the sale of oil, natural gas and NGLs will decrease if market prices decline.

oil, natural gas and NGLs, as presented on the unaudited interim condensed consolidated statements of operations, represent the Company’s

share of revenues net of royalties and excluding revenue interests owned by others.

When selling oil, natural gas and NGLs on behalf

of royalty or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis.

To the extent actual

volumes and prices of oil and natural gas sales are unavailable for a given reporting period because of timing or information not received

from third parties, the expected sales volumes and prices for those properties are estimated and recorded.

Variances between the Company’s

estimated revenue and actual payment are recorded in the month the payment is received.

Historically, these differences have been insignificant.

At the end of each month

when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are

recorded in accounts receivable on the consolidated balance sheets.

Taxes assessed by governmental authorities on oil, natural gas and

NGLs sales are presented separately from such revenues in the unaudited interim condensed consolidated statements of operations.

Oil production is transported

from the wellhead to tank batteries or delivery points through flow-lines or gathering systems.

Purchasers of the oil take delivery at

the tank batteries and transport the oil by truck or at a pipeline delivery point and the Company collects a market price, net of pricing

differentials.

Revenue is recognized when control transfers to the purchaser at the net price received by the Company.

Natural Gas and NGLs

Under the Company’s

natural gas sales arrangements, the purchaser takes control of wet gas at a delivery point near the wellhead or at the inlet of the purchaser’s

processing facility.

The purchaser gathers and processes the wet gas and remits proceeds to the Company for the resulting natural gas

and NGLs sales.

Based on the nature of these arrangements, the purchaser is the Company’s processor, thus, the Company recognizes

natural gas and NGLs sales based on the net amount of proceeds received from the purchaser.

Transaction Price Allocated

to Remaining Performance Obligations

Substantially all of the

Company’s product sales are short-term in nature with a contract term of one year or less.

For these contracts, the Company has

utilized the practical expedient in Accounting Standards Update (“ASU”) 2024, Revenue from Contracts with Customers

("Topic 606”) which exempts the Company from the requirements to disclose the transaction price allocated to remaining performance

obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

For the Company’s

product sales that have a contract term greater than one year, the Company has utilized the practical expedient in Topic 606 which states

the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration

is allocated entirely to a wholly unsatisfied performance obligation.

Under these contracts, each unit of product generally represents

a separate performance obligation;

therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated

to remaining performance obligations is not required.

Prior-Period Performance

The Company records revenue

in the month that product is delivered to the purchaser.

Settlement statements for certain natural gas and NGLs sales, however, may not

be received for 30 to 90 days after the date the product is delivered, and as a result the Company is required to estimate the amount

of product delivered to the purchaser and the price that will be received for the sale of the product.

In these situations, the Company

records the differences between its estimates and the actual amounts received for product sales in the month that payment is received

from the purchaser.

Any identified differences between the Company’s revenue estimates and actual revenue received have historically

been insignificant.

For the three months ended March 31, 2025 and 2024, revenue recognized in the reporting period related to performance

obligations satisfied in prior reporting periods was not material.

Segment Reporting

The Company operates as

one operating segment and one reportable segment which is engaged in the exploration, development, and production of oil, gas, and NGLs

in New Mexico, North Dakota, Montana, Texas, and Louisiana, from which all of its revenues are derived and expenses incurred.

All financial

results are reviewed by the Chief Executive Officer ("CEO”), the Company’s Chief Operating Decision Maker ("CODM”),

on a consolidated basis to evaluate performance of the Company.

The single segment constitutes all of the consolidated entity and the

accompanying unaudited interim condensed consolidated financial statements and the notes to the accompanying unaudited interim condensed

consolidated financial statements are representative of such amounts.

Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurement

(“ASC Topic 820”) , defines fair value, establishes a consistent framework for measuring fair value and establishes

a fair value hierarchy based on the observability of inputs used to measure fair value.

The three-level fair value hierarchy for disclosure of

fair value measurements defined by ASC Topic 820 is as follows:

The FASB ASC 820, Fair Value Measurement

(“Topic 820”) standards define fair value, establish a consistent framework for measuring fair value and establish a

fair value hierarchy based on the observability of inputs used to measure fair value.

The three-level fair value hierarchy for

disclosure of fair value measurements defined by Topic 820 is as follows:

Level 1 – Unadjusted,

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market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 – Prices or valuations

that require unobservable inputs that are both significant to the fair value measurement and unobservable.

Valuation under Level 3 generally

involves a significant degree of judgment from management.

Level 3 – Prices

or valuations that require unobservable inputs that are both significant to the fair value measurement and unobservable.

Valuation under

Level 3 generally involves a significant degree of judgment from management.

A financial instrument’s level within

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justifies classification in the original level.

There were no transfers between fair value hierarchy levels for the period ended September

Financial 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.

Derivatives – Derivative

financial instruments are carried at fair value and measured on a recurring basis.

Empire’s commodity price hedges are valued based

on discounted future cash flow models that are primarily based on published forward commodity price curves;

thus, these inputs are designated

as Level 2 within the valuation hierarchy.

The fair values of derivative instruments

in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments in liability positions

include measures of Empire’s nonperformance risk.

These measurements were not material to the unaudited interim condensed consolidated

financial statements.

Assets and Liabilities Measured at

Fair Value on a Recurring Basis - Empire uses a binomial lattice valuation model to value Level 3 derivative liabilities at inception

and on subsequent valuation dates.

This model incorporates transaction details such as Empire’s stock price, contractual terms

of the Promissory Note, and unobservable inputs classified as Level 3 including risk-free rate and expected volatility.

As of the conversion

option exercise date of May 24, 2024, these unobservable inputs were 5.0% and 46.9%, respectively.

Fair Value on a Nonrecurring Basis

Empire applies the provisions of fair value

measurement on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties and asset retirement

These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments

if events or changes in certain circumstances indicate that adjustments may be necessary.

No triggering events that require assessment

of such items were observed during the nine months ended September 30, 2024.

There were no transfers between fair value hierarchy levels for the three months ended

March 31, 2025.

Related Party Transactions

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to be related party transactions even though they may not be given accounting recognition.

FASB ASC 850, Related Party Disclosures

requires that transactions with related parties that would have influence in decision making shall be disclosed so that users of

the financial statements can evaluate their significance.

FASB ASC 850, Related Party Disclosures (“Topic

850”) requires that transactions with related parties that would have influence in decision making shall be disclosed so that users

of the financial statements can evaluate their significance.

Related party transactions typically occur within the context of the following

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parties might be prevented from fully pursuing its own separate interests.

Concentrations of Credit Risk

accounts receivable are primarily receivables from oil and natural gas purchasers and joint interest owners.

The purchasers of Empire’s

oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies.

Historically, Empire has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers.

Empire operates a substantial portion of its oil and natural gas properties.

As the operator of a property, Empire makes full payments

for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share

of those costs.

Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting

of amounts payable or receivable between Empire and its joint interest owners.

Empire’s joint interest partners consist primarily

of independent oil and natural gas producers.

If the oil and natural gas exploration and production industry in general was adversely

affected, the ability of Empire’s joint interest partners to reimburse Empire could be adversely affected.

Recently Adopted Accounting Standards

The FASB periodically issues new accounting

standards in a continuing effort to improve standards of financial accounting and reporting.

Empire has reviewed the recently issued

pronouncements and concluded that the following new accounting standards are applicable:

In August 2020, the FASB issued Accounting Standards

Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts

in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

The amendments in this ASU affect entities that issue convertible instruments and/or contracts in an entity’s own equity.

The amendments

in this ASU primarily affect convertible instruments issued with beneficial conversion features or cash conversion features because the

accounting models for those specific features are removed.

However, all entities that issue convertible instruments are affected by the

amendments to the disclosure requirements of this ASU.

For contracts in an entity’s own equity, the contracts primarily affected

are freestanding instruments and embedded features that are accounted for as derivatives under the current guidance because of failure

to meet the settlement conditions of the derivatives scope exception related to certain requirements of the settlement assessment.

affected is the assessment of whether an embedded conversion feature in a convertible instrument qualifies for the derivatives scope

Additionally, the amendments in this ASU affect the diluted EPS calculation for instruments that may be settled in cash or

shares and for convertible instruments.

The amendments in this ASU are effective for public business entities, excluding entities eligible

to be smaller reporting companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods

within those fiscal years.

The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year.

The Board decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective

method of transition.

Empire has adopted this standard for the current year and does not expect it to have a material impact on our consolidated

Recently Issued Accounting Standards

The FASB periodically issues new accounting standards

in a continuing effort to improve standards of financial accounting and reporting.

Empire has reviewed the recently issued pronouncements

and concluded that the following new accounting standards updates (“ASU”) are applicable:

In December 2023, FASB, issued

ASU 2023-09, Income Taxes:

Improvements to Income Tax Disclosures (“Topic 740”).

The guidance in Topic 740 improves

the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid

disaggregated by jurisdiction.

The standard is effective for public companies for fiscal years beginning after December 15, 2024, with

early adoption permitted and should be applied prospectively but can be adopted retrospectively.

The Company is currently evaluating

the impact of this standard on its consolidated financial statements and related disclosures.

In November 2024, FASB issued

ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (“Subtopic

220-40”), which expands disclosures around a public entity’s costs and expenses of specific items (i.e.

employee compensation

and depreciation, depletion and amortization (“DD&A”)), requires the inclusion of amounts that are required to be disclosed

under US GAAP in the same disclosure as other disaggregation requirements, requires qualitative descriptions of amounts remaining in

expense captions that are not separately disaggregated quantitatively, and requires disclosure of total selling expenses, and in annual

periods, the definition of selling expenses.

The amendment does not change or remove existing disclosure requirements.

The amendment

is effective for fiscal years beginning after December 15, 2026, and interim periods with fiscal years beginning after December 15, 2027.

Early adoption is permitted, and the amendment can be adopted prospectively or retrospectively to any or all periods presented in the

financial statements.

Empire is currently assessing the impact of adopting this standard which is expected to only affect financial statement

2024, FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Option:

Induced Conversions of Convertible Debt Instruments ,

to improve the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20.

ASU 2024-04 is effective

for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting

Early adoption is permitted as of the beginning of the annual reporting period for all entities that have adopted ASU 2020-06

and may be adopted either on a prospective or retrospective basis.

The Company early adopted this ASU on January 1, 2025, on a prospective

basis and determined it did not have a material impact on the period’s consolidated financial statements.

Note 3 – Property

Empire follows the successful efforts method

of accounting for its oil and natural gas activities.

Under this method, costs to acquire oil and natural gas properties and costs incurred

to drill and equip development and exploratory wells are deferred until exploration and completion results are evaluated.

drilling costs are expensed if recoverable reserves are not found.

Upon sale or retirement of oil and natural gas properties, the costs

and related accumulated depreciation, depletion and amortization are eliminated from the accounts and the resulting gain or loss is recognized.

Costs incurred to maintain wells and related

equipment and lease and well operating costs are charged to expense as incurred.

Depletion is calculated on a units-of-production

basis at the field level based on total proved developed reserves.

Proved oil and natural gas properties are reviewed

for impairment at least annually, or as indicators of impairment arise.

There have been no indicators of impairment during the nine months

ended September 30, 2024.

Aggregate capitalized costs of oil and natural

The aggregate capitalized costs of oil and natural

gas properties are as follows:

September 30, 2024

December 31, 2023

(in thousands)

Proved properties

$ 129,301,577

Unproved properties

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Gross capitalized costs

Depreciation, depletion, amortization and impairment

( 29,561,539 )

( 22,996,805 )

Accumulated depletion, amortization and impairment

Total Oil and gas properties, net

$ 106,829,516

Depletion and amortization expense related to

oil and gas properties for the three months ended September 30, 2024 and 2023, was approximately $ 2,521,000 and $ 677,000 , respectively.

Depletion and amortization expense related to oil and gas properties for the nine months ended September 30, 2024 and 2023, was approximately

$ 6,565,000 and $ 1,897,000 , respectively.

Empire has completed 13 wells in North Dakota

related to our Starbuck Drilling Program during the first three quarters of 2024.

On 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, a related party.

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 $ 3,000,000 which was 60% of the

purchase price of $ 5,000,000 under the Purchase Option.

Pursuant to the remaining unexercised portion of the Purchase Option, Empire

had the right to extend the initial one-year Purchase Option period for two successive one-year periods by agreeing to issue additional

shares of common stock prior to the end of the one-year period then in effect.

On August 8, 2024, Empire successfully extended the Purchase

Option with the issuance of 16,800 shares of common stock to Energy Evolution, and as such, Empire has the right to acquire the remaining

Option Assets for an exercise price of $ 2,000,000 , 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.

oil and gas properties for the three months ended March 31, 2025 and 2024, was approximately $ 2.1 million and $ 1.4 million, respectively.

Proved oil and natural gas properties are reviewed

for impairment at least annually, or as indicators of impairment arise.

There have been no indicators of impairment during the three

months ended March 31, 2025.

Other property and equipment consists of operating

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Schedule of other property plant and equipment

September 30, 2024

December 31, 2023

(in thousands)

Other property and equipment, at cost

accumulated depreciation

( 1,701,009 )

( 1,114,807 )

Other property and equipment, net

Oher property and equipment, net

Depreciation expense related to other property

and equipment for the three months ended September 30, 2024 and 2023, was approximately $ 76,000 and $ 51,000 , respectively.

expense related to other property and equipment for the nine months ended September 30, 2024 and 2023, was approximately $ 199,000 and

$ 164,000 , respectively.

and equipment for the three months ended March 31, 2025 and 2024, was approximately $ 0.1 million and $ 0.1 million, respectively.

Note 4 - Asset Retirement Obligations

Empire’s asset retirement obligations

represent the estimated present value of the estimated cash flows Empire will incur to plug, abandon, and remediate its producing properties

at the end of their productive lives, in accordance with applicable state laws.

Market risk premiums associated with asset retirement

obligations are estimated to represent a component of Empire’s credit-adjusted risk-free rate that is utilized in the calculations

of asset retirement obligations.

Empire’s asset retirement obligation activity is as follows:

For the Nine Months Ended September

The Company’s asset retirement obligations

(“ARO”) represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate

its producing properties at the end of their productive lives, in accordance with applicable state laws.

Market risk premiums associated

with asset retirement obligations are estimated to represent a component of the Company’s credit-adjusted risk-free rate that is

utilized in the calculations of AROs.

The Company’s ARO activities are summarized

in the following table:

For the Three Months Ended March 31,

(in thousands)

Asset retirement obligations, beginning of period

Liabilities incurred from dilling activity

Liabilities settled

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Asset retirement obligation, end of period

Less current portion included in Accrued Expenses

current portion included in Accrued expenses

Asset retirement obligation, long-term

The additions in 2024 primarily relate to the

completion of new wells as part of Empire’s North Dakota Starbuck Drilling Program and additional working interest acquired in

New Mexico (see Note 3).

Note 5 – Commodity Derivative Financial Instruments

Empire 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 Empire produces and sells.

Empire does not enter into derivative financial instruments for

speculative or trading purposes.

Empire’s derivative financial instruments consist of swaps and put options.

Empire does not designate its derivative instruments

in such a way that would qualify for hedge accounting.

Accordingly, Empire reflects changes in the fair value of its derivative instruments

in its consolidated statements of operations as they occur.

Unrealized gains and losses related to the contracts are recognized and recorded

as changes to the derivative asset or liability on Empire’s consolidated balance sheets.

following table summarizes the net realized and unrealized gains and (losses) reported in earnings related to the commodity derivative

instruments for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Gain (Loss) on Derivatives:

Oil derivatives (a)

$ ( 1,185,921 )

$ ( 388,886 )

$ ( 1,319,401 )

$189,188 of unrealized derivative gain and $1,140,066 of unrealized derivative losses for

the three months ended September 30, 2024 and 2023, respectively, and includes $407,086 and

$1,232,359 of unrealized derivative losses for the nine months ended September 30, 2024 and

2023, respectively.

following represents Empire’s net settlements received (paid) related to derivatives for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Oil derivatives

As of September 30, 2024, Empire did not have

any outstanding derivative contracts.

In late third-quarter 2024, we settled all outstanding derivative positions for a net realized

gain of $300,000.

The liabilities incurred from drilling activity

in the first quarter of 2024 primarily relate to the completion of four wells as part of Empire’s North Dakota Starbuck Drilling

Note 5 – Commodity Derivative Financial

The Company has used derivative financial instruments

to manage its exposure to commodity price fluctuations in the past.

Commodity derivative instruments have been used to reduce the effect

of volatility of price changes on the oil and natural gas the Company produces and sells.

The Company does not enter into derivative

financial instruments for speculative or trading purposes.

The Company’s derivative financial instrument activity has consisted

of swaps and put options.

The Company does not designate its derivative instruments

to qualify for hedge accounting.

Accordingly, the Company reflects changes in the fair value of its derivative instruments in its unaudited

interim condensed consolidated statements of operations as they occur.

These contracts are recognized and recorded at fair value as an

asset or liability on the Company’s unaudited interim condensed consolidated balance sheets.

Cash receipts or payments upon settlement

of swaps and put options are reflected in the operating activities section of its unaudited interim condensed consolidated statement

of cash flows.

The following table summarizes the net realized and

unrealized amounts reported in earnings related to the oil derivative instruments:

For the Three Months Ended March 31,

(in thousands)

Loss on derivatives, realized

Loss on derivatives, unrealized

Loss on derivatives, net

The following table represents the Company’s

net cash payments on derivatives:

For the Three Months Ended March 31,

(in thousands)

Cash payments on oil derivatives, net

The Company did not have any open positions as of

March 31, 2025.

Note 6 – Accounts Receivable

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accounts receivable as of the dates presented:

September 30, 2024

December 31, 2023

Oil, Gas and NGL Receivables

(in thousands)

Oil, Gas and NGLs receivables

Joint interest billings

Joint interest billings - related party

Total Accounts receivable

2 unchanged sentences

accrued expenses as of the dates presented:

September 30, 2024

December 31, 2023

(in thousands)

Accrued and suspended third-party revenue

2 unchanged sentences

Asset retirement obligation - current

Note 8 – Debt Including Debt with Related Parties

Note 8 – Debt Including Debt with Related

The following table represents Empire’s

outstanding debt as of the dates presented:

September 30, 2024

December 31, 2023

(in thousands)

Equity Bank Credit Facility

Note Payable – Related Party

Equipment and vehicle notes, 0.00% to 9.00% interest rates, due in 2025 to 2028 with monthly payments

ranging from $900 to $1,400 per month

Note Payable to insurance provider, bears 7.29% interest, matures January 2025, monthly payments

of principal and interest of $51,067

Note Payable to insurance provider, bears 8.25% interest, matures January 2026, monthly payments of principal and interest of $58,103

Equipment and vehicle notes, 0.00% to 9.59% interest rates, due in 2025 to 2030 with monthly payments ranging from $900 to $1,400 per month (1)

Current Maturities

Note Payable – Related Party

( 1,060,004 )

Long-Term Debt

On December 29, 2023, Empire North Dakota and

Empire NDA (“Borrowers”), entered into a Revolver Loan Agreement with Equity Bank (the “Revolver”).

to the Revolver (a) the initial revolver commitment amount is $10,000,000;

(1) Weighted-average interest rate of 9.15%

On December 29, 2023, Empire North Dakota and Empire

NDA ("Borrowers”), entered into a revolver loan agreement with Equity Bank (the "Credit Facility”).

the Credit Facility (a) the initial revolver commitment amount is $10.0 million;

(b) the maximum revolver commitment amount is $15.0

(c) commencing on January 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is

reduced by $150,000;

(d) commencing on March 31, 2024, there are scheduled semiannual collateral borrowing base redeterminations each

year on March 31 and September 30;

(c) commencing on January 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment

amount is reduced by $150,000;

(d) commencing on March 31, 2024, there are scheduled semiannual collateral borrowing base redeterminations

each year on March 31 and September 30;

(e) the final maturity date is December 29, 2026;

(f) outstanding borrowings bear interest at a rate

equal to the prime rate of interest plus 1.50%, and in no event lower than 8.50%;

(g) a quarterly commitment fee is based on the unused

portion of the commitments;

and (h) Borrowers have the right to prepay loans under the Revolver at any time without a prepayment penalty.

The Revolver is guaranteed by Empire.

entered into a security agreement, pursuant to which the obligations under the Revolver are secured by liens on substantially all of

the assets of Borrowers.

Furthermore, the obligations under the Revolver are secured by a continuing, first priority mortgage lien, pledge

of and security interest in not less than 80% of Borrowers’ producing oil, gas and other leasehold and mineral interests, including

without limitation, those situated in the States of North Dakota and Montana.

The Revolver requires Borrowers to, commencing

(f) outstanding borrowings bear interest at

a rate equal to the prime rate of interest plus 1.50%, and in no event lower than 8.50%;

(g) a quarterly commitment fee is based on the

unused portion of the commitments;

and (h) Borrowers have the right to prepay loans under the Credit Facility at any time without a prepayment

The Credit Facility is guaranteed by the Company.

Borrowers entered into a security agreement, pursuant to which the obligations under the Credit Facility are secured by liens on substantially

all of the assets of Borrowers.

Furthermore, the obligations under the Credit Facility are secured by a continuing, first priority mortgage

lien, pledge of and security interest in not less than 80% of Borrowers’ producing oil, gas and other leasehold and mineral interests,

including without limitation, those situated in the States of North Dakota and Montana.

The Credit Facility requires Borrowers to, commencing

as of the fiscal quarter ended December 31, 2023, maintain (a) a current ratio of 1.0 to 1.0 or more and (b) a ratio of funded debt to

EBITDAX, calculated quarterly and annually based on a trailing twelve-month basis, of no more than 3.50 to 1.00.

Empire was not in compliance

with the current ratio covenant as of September 30, 2024, however, Empire received a compliance waiver from the lender for September

EBITDAX (as defined in the revolver loan agreement), calculated quarterly and annually based on a trailing twelve-month basis, of no

more than 3.50 to 1.00.

At March 31, 2025, the Borrowers were in compliance with all required covenants under the Credit Facility.

On November 18, 2024, the Company entered into the

First Amendment to the Credit Facility (the “First Amendment”).

Pursuant to the First Amendment (a) the maximum revolver

commitment amount is $20.0 million;

and (b) commencing on December 31, 2024, and occurring on the last day of each calendar month thereafter,

the revolver commitment amount is reduced by $250,000.

Subsequent to March 31, 2025, we borrowed an additional

$ 3.0 million under our Credit Facility.

Promissory Note – Related Party

On February 16, 2024, Empire issued a Promissory

Note in the aggregate principal amount of $ 5,000,000 (the “Note”) to Energy Evolution.

Energy Evolution advanced Empire $ 5,000,000

under the Note.

The proceeds of the Note were used by Empire to fund, in part, its ongoing oil and gas drilling program and for working

capital purposes.

The Note matures on February 15, 2026, (the

“Maturity Date”) and accrues interest at the rate of 7 % per annum.

After the Maturity Date, any principal balance of the

Note remaining unpaid accrues interest at the rate of 9 % per annum.

At the option of Energy Evolution, interest payments will be paid

either in cash or in shares of common stock of Empire on each of the following dates (or if any such date is not a business day, the

next following business day) (each an “Interest Payment Date”), except upon the occurrence of an Event of Default, in which

case interest will accrue and be paid in cash on demand:

(i) March 31, 2024;

(ii) June 30, 2024;

(iii) September 30, 2024;

(iv) December 31, 2024;

(v) March 31, 2025;

(vi) June 30, 2025;

(vii) September 30, 2025;

(viii) December 31,

and (ix) the Maturity Date.

All or any portion of the outstanding principal amount of the Note may be converted into shares of

common stock of Empire at a conversion price of $6.25 per share (the “Conversion Price”), at the option of Energy Evolution,

at any time and from time to time.

If the full principal amount of the Note is drawn and converted into shares of common stock of Empire,

800,000 shares would be issued (without giving effect to any interest that may be converted).

Accrued interest on the principal amount

converted will be due on the applicable date of conversion in cash or, at the option of Energy Evolution, by issuance of shares of common

stock of Empire in the manner set forth in the Note (where the date of conversion is the relevant Interest Payment Date”).

Conversion Price is subject to customary adjustments.

The Note may be prepaid at any time or from time to time without the consent of

Energy Evolution and without penalty or premium, provided that Empire provides Energy Evolution with at least five business days prior

written notice, each principal payment is made in cash and all accrued interest is paid in cash, or at the option of Energy Evolution,

the accrued interest may be paid by issuance of shares of common stock of Empire in the manner set forth in the Note (where the Interest

Payment Date is the date of prepayment).

Empire determined that an embedded conversion

feature included in the Note required bifurcation from the host contract that is recognized as a separate derivative liability carried

at fair value.

The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $1,292,000 as

of March 31, 2024, and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 2.

Empire recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $738,000 in other income

(expense) in the unaudited interim condensed consolidated statements of operations for the quarter ended March 31, 2024.

The conversion

option was exercised by Energy Evolution on May 24, 2024, in exchange for 800,000 shares of common stock of the Company under the terms of the Note and the fair value of the derivative was revalued as of that date resulting

in a loss of $1,736,000 in the second quarter of 2024.

All of the other embedded features of the Note were clearly and closely related

to the debt host and did not require bifurcation as a derivative liability.

On February 16, 2024, Empire

issued a promissory note (the "Note”) in the aggregate principal amount of $ 5.0 million to Energy Evolution with a maturity

date of February 15, 2026, (the “Maturity Date”) and accrues interest at the rate of 7 % per annum beginning March 31, 2024,

and on each subsequent quarter end date until the Maturity Date paid in the form of cash or shares of common stock at the option of Energy

Any unpaid balance after the Maturity Date accrues interest at the rate of 9 % per annum.

The Note carries no penalties for

prepayment without the consent of Energy Evolution if Empire provides written notification within at least five business days.

discretion of Energy Evolution all or any portion of the outstanding principal amount of the Note may be converted into shares of common

stock at a conversion price of $6.25 per share, subject to customary adjustments, up to a maximum conversion shares amount of 800,000

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

Empire determined that an

embedded conversion feature included in the Note required bifurcation from the host contract that is recognized as a separate

derivative liability carried at fair value.

The estimated fair value of the derivative liability, which represents a Level 3

valuation, was approximately $1.3 million as of March 31, 2024, and was determined using a binomial lattice model using certain

assumptions and inputs discussed in Note 15.

Accordingly, Empire recognized a gain on the fair value adjustment of the derivative

liability in the amount of approximately $0.7 million.

The conversion option was exercised by Energy Evolution on May 24, 2024, in

exchange for 800,000 shares of common stock of the Company under the terms of the Note and the fair value of the derivative was

revalued as of that date resulting in a loss of $1.7 million in 2024.

All of the other embedded features of the Note were clearly

and closely related to the debt host and did not require bifurcation as a derivative liability.

Note Payable – Related Party

In August 2020, Empire, through its wholly owned

subsidiary, Empire Texas, entered into a joint development agreement (the “JDA”) with Petroleum & Independent Exploration,

LLC and related entities (“PIE”), a related party (see Note 14), dated August 1, 2020.

Under the terms of the JDA, PIE will

perform recompletion or workover on specified mutually agreed upon wells (“Workover Wells”) owned by Empire Texas.

with the JDA with PIE, Empire entered into a term loan agreement dated August 1, 2020, whereby PIE will loan up to $ 2,000,000 , at an

interest rate of 6 % per annum, maturing August 6, 2024, unless terminated earlier by PIE.

The loan proceeds were used for recompletion

or workover of certain designated wells.

In addition, Empire assigned 85% working and revenue interest to PIE in the designated wells

which will be applied to repayment of the loan.

As of June 30, 2024, $1,060,004 has been advanced from the PIE loan.

On July 31, 2024, PIE, Empire Texas, and Empire

entered into a note repayment and loan termination agreement providing for the payment in full of the remaining outstanding amount of

the $ 1,060,004 PIE loan and extending the loan maturity date to December 31, 2024, unless terminated earlier by PIE.

As payment in full,

Empire issued PIE 205,427 shares of common stock of Empire following the approval of a supplemental listing application by the NYSE American

stock exchange in the third quarter of 2024.

In August 2020, Empire,

through its wholly-owned subsidiary, Empire Texas, entered into a joint development agreement (“JDA”) with Petroleum &

Independent Exploration, LLC and related entities ("PIE”), a related party (see Note 13), dated August 1, 2020.

terms of the JDA, PIE performed recompletion or workover on specified mutually agreed upon wells owned by Empire Texas.

Concurrent with

the JDA with PIE, Empire entered into a term loan agreement dated August 1, 2020, whereby PIE will loan up to $ 2.0 million, at an interest

rate of 6 % per annum, maturing August 6, 2024, unless terminated earlier by PIE.

The loan proceeds were used for recompletion or workover

of certain designated wells.

In addition, Empire assigned 85% working and revenue interest to PIE in the designated wells which will

be applied to repayment of the loan.

On July 31, 2024, PIE,

Empire Texas, and Empire entered into a note repayment and loan termination agreement providing for the payment in full of the remaining

outstanding amount of the approximate $ 1.1 million PIE loan and extending the loan maturity date to December 31, 2024, unless terminated

earlier by PIE.

As payment in full, Empire issued PIE 205,427 shares of common stock of Empire following the approval of a supplemental

listing application by the NYSE American stock exchange in the third quarter of 2024.

Note 9 - Leases

As a lessee, Empire leases its corporate office

headquarters in Tulsa, Oklahoma, and one field office in North Dakota.

As a lessee, the Company leases its corporate office

headquarters in Tulsa, Oklahoma, and one field office.

The leases expire between 2025 and 2027.

The corporate office

has an option to renew for an additional five -year term.

The option to renew the lease is generally not considered reasonably certain

to be exercised.

Therefore, the period covered by such optional period is not included in the determination of the term of the lease

and the lease payments during these periods are similarly excluded from the calculation of right-of-use lease asset and lease liability

Empire also leases vehicles primarily used in

The corporate office has an option to

renew for an additional five -year term.

The option to renew the lease is generally not considered reasonably certain to be exercised.

Therefore, the period covered by such optional period is not included in the determination of the term of the lease and the lease payments

during these periods are similarly excluded from the calculation of right-of-use lease asset and lease liability balances.

The Company also leases vehicles primarily used in

our field operations.

These vehicle leases typically have a three -year life.

Empire recognizes right-of-use lease expense

The Company recognizes right-of-use lease expense

on a straight-line basis, except for certain variable expenses that are recognized when the variability is resolved, typically during

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Right-of-use lease expense was approximately $ 0.1

$ 407,000 and $ 288,000 for the periods ended September 30, 2024 and 2023, respectively.

Cash paid for right-of-use leases was approximately

$ 376,000 and $ 279,000 for the same periods.

Supplemental balance sheet information related to the right-of-use

leases is as follows:

million and $ 0.1 million for the three months ended March 31, 2025 and 2024, respectively.

Cash paid for right-of-use lease was approximately

$ 0.1 million and $ 0.1 million for the same periods.

Supplemental balance sheet information related

to the right-of-use leases is as follows:

Schedule of right of use leases

September 30, 2024

December 31, 2023

(in thousands)

Net operating lease asset (included in Other property and equipment)

2 unchanged sentences

Total right-of-use lease liabilities

The weighted-average remaining term for Empire’s right-of-use

leases is 1.6 years.

The weighted-average discount rate was 8.35 % for the third quarter of 2024.

Maturities of lease liabilities are as follows as of September 30,

The weighted-average remaining term for Empire’s

right-of-use leases is 1.24 years, and the weighted-average discount rate is 8.33 % as of the first quarter of 2025.

Maturities of lease liabilities are as follows

as of the date presented:

(in thousands)

Total lease payments

Less imputed interest

imputed interest

Total lease obligation

Note 10 – Equity

Pursuant to Empire’s Amended and Restated

Certificate of Incorporation (the “Charter”), effective as of March 4, 2022, the total number of shares of all classes of

stock that Empire has the authority to issue is 200,000,000, consisting of 190,000,000 shares of common stock, par value $ 0.001 per share,

and 10,000,000 shares of preferred stock, par value $ 0.001 per share.

Pursuant to the Company’s Amended and

Restated Certificate of Incorporation (“Charter”), effective as of March 4, 2022, the total number of shares of all classes

of stock that the Company has the authority to issue is 200,000,000 , consisting of 190,000,000 shares of common stock, par value $ 0.001

per share, and 10,000,000 shares of preferred stock, par value $ 0.001 per share.

Preferred Stock

Preferred stock may be issued from time to time

in one or more series at the direction of the Board of Directors.

The directors also have the ability to fix dividend rates and rights,

liquidation preferences, voting rights, conversion rights, rights and terms of redemption and other rights, preferences, privileges and

restrictions, subject to certain limitations set forth in the Charter.

Preferred stock may be issued from time to

time in one or more series at the direction of the Company’s Board of Directors and the directors also have the ability to fix

dividend rates and rights, liquidation preferences, voting rights, conversion rights, rights and terms of redemption and other rights,

preferences, privileges and restrictions as determined by the Company’s Board of Directors, subject to certain limitations set

forth in the Charter.

A Voting Preferred Stock

On March 8, 2022, Empire formalized the issuance

of preferred stock as was required under the terms of Empire's May 2021 financing agreements with Energy Evolution and issued 6 shares

of Series A Voting Preferred Stock.

The Series A Voting Preferred Stock was issued in connection

with the strategic investment in Empire by Energy Evolution.

For so long as the Series A Voting Preferred Stock is outstanding, Empire’s

Board of Directors will consist of six directors.

Three of the directors are designated as the Series A Directors and the three other

directors (each, a “common director”) are elected by the holders of common stock and/or any preferred stock (other than the

Series A Voting Preferred Stock) granted the right to vote on the common directors.

Any Series A Director may be removed with or without

cause but only by the affirmative vote of the holders of a majority of the Series A Voting Preferred Stock voting separately and as a

single class.

The holders of the Series A Voting Preferred Stock have the exclusive right, voting separately and as a single class, to

vote on the election, removal and/or replacement of the Series A Directors.

Holders of common stock or other preferred stock do not have

the right to vote on the Series A Directors.

The approval of the holders of the Series A Voting Preferred Stock, voting separately and

as a single class, is required to authorize any resolution or other action to issue or modify the number, voting rights or any other

rights, privileges, benefits, or characteristics of the Series A Voting Preferred Stock, including without limitation, any action to

modify the number, structure and/or composition of Empire’s current Board of Directors.

A Voting Preferred Stock is held by Phil Mulacek, chairman of the Board of Directors and one of the principals of Energy Evolution, as

Energy Evolution’s designee (the “Initial Holder”).

The Series A Voting Preferred Stock may be transferred only to

certain controlled affiliates of the Initial Holder (“Permitted Transferees”), and the voting rights of the Series A Voting

Preferred Stock are contingent upon the Initial Holder and Permitted Transferees (collectively, the “Series A Holders”) holding

together at least 3,000,000 shares of Empire’s outstanding common stock.

The Series A Voting

Preferred Stock is not entitled to receive any dividends or distributions of cash or other property except in the event of any liquidation,

dissolution or winding up of Empire’s affairs.

In such event, before any amount is paid to the holders of Empire’s common

stock but after any amount is paid to the holders of Empire’s senior securities, the holders of the Series A Voting Preferred Stock

On March 8, 2022, the Company formalized the

issuance of preferred stock as was required under the terms of the Company's May 2021 financing agreements with Energy Evolution and

issued six shares of Series A Voting Preferred Stock.

The Series A Voting Preferred Stock was issued

in connection with the strategic investment in the Company by Energy Evolution.

For so long as the Series A Voting Preferred Stock is

outstanding, the Company’s Board of Directors will consist of six directors.

Three of the directors are designated as the Series

A Directors and the three other directors (each, a “common director”) are elected by the holders of common stock and/or any

preferred stock (other than the Series A Voting Preferred Stock) granted the right to vote on the common directors.

Any Series A Director

may be removed with or without cause but only by the affirmative vote of the holders of a majority of the Series A Voting Preferred Stock

voting separately and as a single class.

The holders of the Series A Voting Preferred Stock have the exclusive right, voting separately

and as a single class, to vote on the election, removal and/or replacement of the Series A Directors.

Holders of common stock or other

preferred stock do not have the right to vote on the Series A Directors.

The approval of the holders of the Series A Voting Preferred

Stock, voting separately and as a single class, is required to authorize any resolution or other action to issue or modify the number,

voting rights or any other rights, privileges, benefits, or characteristics of the Series A Voting Preferred Stock, including without

limitation, any action to modify the number, structure and/or composition of the Company’s current Board of Directors.

A Voting Preferred Stock is held by Phil Mulacek, Chairman of the Board of Directors of the Company and one of the principals of Energy

Evolution, as Energy Evolution’s designee (the “Initial Holder”).

The Series A Voting Preferred Stock may be transferred

only to certain controlled affiliates of the Initial Holder (“Permitted Transferees”), and the voting rights of the Series

A Voting Preferred Stock are contingent upon the Initial Holder and Permitted Transferees (collectively, the “Series A Holders”)

holding together at least 3,000,000 shares of the Company’s outstanding common stock.

The Series A Voting Preferred

Stock is not entitled to receive any dividends or distributions of cash or other property except in the event of any liquidation, dissolution

or winding up of the Company’s affairs.

In such event, before any amount is paid to the holders of the Company’s common stock

but after any amount is paid to the holders of the Company’s senior securities, the holders of the Series A Voting Preferred Stock

will be entitled to receive an amount per share equal to $1.00.

Except as discussed

above or as otherwise set forth in the certificate of designation of the Series A Voting Preferred Stock, the holders of the Series A

Voting Preferred Stock have no voting rights.

The Series A Voting

Preferred Stock is not redeemable at Empire’s election or the election of any holder, except Empire may elect to redeem the Series

Except as discussed above

or as otherwise set forth in the certificate of designation of the Series A Voting Preferred Stock, the holders of the Series A Voting

Preferred Stock have no voting rights.

The Series A Voting Preferred

Stock is not redeemable at the Company’s election or the election of any holder, except the Company may elect to redeem the Series

A Voting Preferred Stock for $1.00 per share following satisfaction of its notice and cure requirements in the event that:

any or all shares of

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

the Series A Holders

together hold less than 3,000,000 shares of Empire’s outstanding common stock.

The Series A Voting

Preferred Stock is not convertible into common stock or any other security.

On August 27, 2021, Empire’s Board of

Directors approved a one-for-four reverse stock split such that every holder of Empire’s common stock would receive one share of

common stock for every four shares owned.

or all shares of Series A Voting Preferred Stock are held by anyone other than the Initial

Holder or a Permitted Transferee;

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

common stock.

The Series A Voting Preferred

Stock is not convertible into common stock or any other security.

On August 27, 2021, the Company’s Board of

Directors approved a one-for-four reverse stock split such that every holder of the Company’s common stock would receive one share

of common stock for every four shares owned.

The reverse stock split was effective as of 6:00 p.m.

Eastern Time on March 7, 2022, immediately

prior to Empire’s listing of its common stock on the NYSE American.

prior to the Company’s listing of its common stock on the NYSE American.

All share amounts have retrospectively been stated at

post-reverse split amounts and pricing.

The holders of shares of common stock are entitled

1 unchanged sentence

Examples of matters that common stockholders

are entitled to vote on include, but are not limited to, election of three of the six directors and other common voting situations afforded

to common stockholders.

In April 2024, Empire completed a subscription

rights offering (the “April Rights Offering”) which raised gross proceeds of $ 20.7 million.

Empire distributed at no charge

to holders of its common stock, as of the close of business on March 7, 2024 (the record date for the April Rights Offering), one subscription

right for each share of common stock held.

Each subscription right entitled the holder to purchase 0.161 shares of common stock at a

subscription price of $5.00 per share per one whole share of common stock.

The subscription rights were non-transferable and not listed

for trading on any stock exchange or market.

On May 29, 2024, Empire issued Energy Evolution

a warrant certificate granting them the right to purchase 128,800 shares of common stock of Empire at $5.00 per share.

On June 28, 2024,

Energy Evolution exercised the warrants and received 128,800 shares in exchange for $ 644,000 .

In November 2024, Empire completed a subscription

rights offering (the “November Rights Offering”) which raised gross proceeds of $10.0 million.

Empire distributed at no charge

to holders of its common stock, as of the close of business on September 30, 2024 (the record date for the November Rights Offering),

are entitled to vote on include, but are not limited to, the election of three of the six directors and other common voting situations

afforded to common stockholders.

In April 2024, Empire completed

a subscription rights offering (the "April Rights Offering”) which raised gross proceeds of $20.7 million.

Empire distributed

at no charge to holders of its common stock, as of the close of business on March 7, 2024 (the record date for the April Rights Offering),

one subscription right for each share of common stock held.

3 unchanged sentences

not listed for trading on any stock exchange or market.

Earnings Per Share

The computation of diluted shares outstanding

for the three and nine months ended September 30, 2024, excluded 1,009,319 and 1,019,469 shares, respectively, related to stock options,

warrants, outstanding RSUs, and convertible debt as their effect would have been anti-dilutive.

The computation of diluted shares outstanding

for the three and nine months ended September 30, 2023, excluded 1,409,686 and 1,586,960 shares, respectively, related to stock options,

warrants, and outstanding RSUs, as their effect would have been anti-dilutive.

On May 31, 2024, Empire issued

Energy Evolution a warrant certificate granting them the right to purchase 128,800 shares of common stock of Empire at $ 5.00 per share.

On June 28, 2024, Energy Evolution exercised the warrants and received 128,800 shares in exchange for approximately $ 0.6 million.

2024, Empire completed a subscription rights offering (the "November Rights Offering”) which raised gross proceeds of $10.0

Empire distributed at no charge to holders of its common stock, as of the close of business on September 30, 2024 (the record

date for the November Rights Offering), one subscription right for each share of common stock held.

Each subscription right entitled

the holder to purchase 0.063 shares of common stock at a subscription price of $5.05 per share per one whole share of common stock.

subscription rights were non-transferable and not listed for trading on any stock exchange or market.

Schedule of Earnings Per Share, Basic and Diluted

For the Three Months Ended March 31,

(in thousands, except per share data)

Basic Weighted-Average Shares

Dilutive effect of potential common shares

Diluted Weighted-Average Shares

Loss per Common Share

(1) At March 31, 2025 and 2024, the Company had approximately 1.1 million and 1.5 million, respectively,

of related stock options, warrants, outstanding restricted stock units and convertible debt excluded from the diluted shares calculation

as their inclusion would be antidilutive due to a net loss for the respective periods.

Note 11 – Stock-Based Compensation

Empire recognizes stock-based compensation expense

associated with granted stock options and restricted stock units (“RSUs”).

Empire accounts for forfeitures of equity-based

incentive awards as they occur.

Stock-based compensation expense related to time-based restricted stock units is based on the price of

the common stock on the grant date and recognized as vesting occurs.

For options, the fair value is determined using the Black-Scholes

option valuation assumptions on dividend yield, expected annual volatility, risk-free interest rate and an expected useful life.

compensation is recorded with a corresponding increase in additional paid-in capital within the unaudited interim condensed consolidated

balance sheets.

Empire recognizes stock-based compensation

expense associated with granted stock options and restricted stock units (“RSUs”).

Empire accounts for forfeitures of

equity-based incentive awards as they occur.

Stock-based compensation expense related to time-based restricted stock units is based

on the price of the common stock on the grant date and recognized as vesting occurs.

For options, the fair value is determined using

the Black-Scholes option valuation assumptions on dividend yield, expected annual volatility, risk-free interest rate and an

expected useful life.

Stock-based compensation is recorded with a corresponding increase in additional paid-in capital within the

unaudited interim condensed consolidated balance sheets.

The following summary reflects nonvested restricted

stock unit activity and related information for the nine months ended September 30, 2024.

Schedule of non vested restricted stock unit activity

Weighted Average

Fair Value (a)

stock unit activity and related information:

Fair Value (1)

Outstanding, December 31, 2024

Outstanding, September 30, 2024

_____________

(a) Shares are valued at the grant-date market price.

Outstanding, March 31, 2025

(1) Shares are valued at the grant-date market price.

The following summary reflects stock option

3 unchanged sentences

Outstanding, December 31, 2024

Outstanding, September 30, 2024

The following table summarizes information about stock options outstanding

as of September 30, 2024.

Schedule of summarizes information about stock options outstanding

Weighted Average

Contractual Life

Exercise Price

$ 1.32 to $ 12.36

Note 12 – Executive Separations

On March 16, 2023, Thomas W.

Pritchard resigned

as Chief Executive Officer and a director of Empire to pursue other opportunities.

Although not required under Mr.

Employment Agreement with Empire, in recognition of Mr.

Pritchard’s past service to Empire, Empire paid Mr.

Pritchard severance

benefits in the amount of approximately $ 360,000 , as set forth in Section 4.2 of his Employment Agreement, in one lump sum payment within

30 days after March 23, 2023, rather than in monthly installments.

This was accrued as of March 31, 2023, and payment was made in April

Empire also extended the period under which Mr.

Pritchard has the right to exercise his outstanding vested non-qualified stock

options from three months after the date of his termination of employment to September 16, 2024.

In addition, Mr.

Pritchard has

surrendered to Empire 340,234 RSUs and options as satisfaction for the $ 2.1 million receivable that primarily resulted from incorrect

withholdings associated with an April 2022 option exercise by Mr.

Empire also had a $ 2.1 million liability recorded at December

31, 2022, related to withholding payables that were remitted in 2023.

On March 17, 2023, the Board of Directors appointed

Morrisett to the position of Chief Executive Officer.

Morrisett did not receive any additional compensation for assuming

the role of Chief Executive Officer.

Outstanding, March 31, 2025 (1)

Exercisable, March 31, 2025 (1)

(1) Stock options outstanding and exercisable had an aggregate intrinsic value of $2.9 million

and $3.3 million,

respectively.

(2) Stock options outstanding at March 31, 2025 had a weighted average remaining contract term of

3.92 years and an exercise price range of $1.32 to $12.36.

Note 12 – Income Taxes

For all periods presented, Empire’s effective

tax rate is 0 %.

Other than the full year of 2022, Empire has generated net operating losses since inception, which would normally reflect

a tax benefit in the unaudited interim condensed consolidated statements of operations and a deferred asset on the unaudited interim

condensed consolidated balance sheets.

However, because of the current uncertainty as to Empire’s ability to achieve sustained

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

in the unaudited interim condensed consolidated statements of operations.

The following table presents a reconciliation

of its effective income tax rate to the U.S.

statutory income tax rate for the periods presented.

of reconciliation of effective income tax rate

the Three Months Ended September 30,

the Nine Months Ended September 30,

at statutory rate

( 2,520,962 )

( 1,639,438 )

State Taxes (net of federal

Nondeductible Expenses

Stock Options Exercised

For all periods presented in the unaudited interim

condensed consolidated statements of operations, Empire’s effective tax rate is 0 %.

Other than the full year of 2022, Empire has

generated net operating losses since inception, which would normally reflect a tax benefit in the unaudited interim condensed consolidated

statements of operations and a deferred tax asset on the unaudited interim condensed consolidated balance sheets.

However, because of

the current uncertainty as to Empire’s ability to achieve sustained profitability, a full valuation reserve has been established

that offsets the amount of any tax benefit available for each period presented in the unaudited interim condensed consolidated statements

of operations.

Note 13 – Related Party Transactions

Energy Evolution is a related party of Empire

as it beneficially owns approximately 31.4 % of Empire’s outstanding shares of common stock as of September 30, 2024.

Additionally,

a board member of Energy Evolution was appointed to Empire’s board in October 2021.

This board member separately beneficially owns

approximately 20.3 % of Empire’s outstanding shares of common stock as of September 30, 2024.

The board member also is a majority

owner of PIE.

In October 2021 another Energy Evolution member was appointed to Empire’s board of directors.

Empire has a JDA with PIE to perform completions

or workovers on specified mutually agreed upon wells.

In the third quarter of 2024, Empire issued PIE 205,427 shares of common stock

of Empire as payment in full for this outstanding note balance of $ 1.1 million (see Note 8).

On February 16, 2024, Empire issued the

Note to Energy Evolution.

Energy Evolution advanced Empire $ 5,000,000 under the Note in the first quarter of 2024.

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 Note (see

Empire elected to partially exercise a Purchase

Option in the second quarter of 2024 and acquired 60% of certain New Mexico interests from Energy Evolution.

See Note 3 for additional

On June 28, 2024, Energy Evolution exercised

warrants of Empire and received 128,800 shares in exchange for $ 644,000 .

See Note 10 for additional information.

Energy Evolution is a related party of the Company

as it beneficially owns approximately 31.8 % of the Company’s outstanding shares of common stock as of March 31, 2025.

2021, a member of Energy Evolution and a board member of Energy Evolution were appointed to the Company’s Board of Directors.

board member of Energy Evolution separately beneficially owns approximately 21.1 % of the Company’s outstanding shares of common

stock as of March 31, 2025, and is also a majority owner of PIE.

The Company had a JDA with PIE to perform recompletion

or workover on specified mutually agreed upon wells.

In the third quarter of 2024, Empire issued PIE 205,427 shares of common stock of

Empire as payment in full for this outstanding note balance of $ 1.1 million (see Note 8).

On February 16, 2024, Empire issued the Note to Energy

Energy Evolution advanced Empire $ 5.0 million under the Note in the first quarter of 2024.

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 Note (see Note 8).

On April 9, 2024, Empire acquired 60 % of certain

New Mexico interests from Energy Evolution.

As consideration, Empire issued Energy Evolution 600,000 shares of common stock of Empire

based on an agreed upon price of $ 5.00 per share for an aggregate agreed upon value of $ 3.0 million.

On June 28, 2024, Energy Evolution exercised its

warrants of Empire and received 128,800 shares in exchange for approximately $ 0.6 million (See Note 10).

Accounts receivable on the unaudited interim condensed

consolidated balance sheet include approximately $ 0.6 million receivables from Energy Evolution.

Accrued expenses on the unaudited interim

condensed consolidated balance sheet include approximately $ 0.1 million of revenue payable to Energy Evolution.

Note 14 – Commitments and Contingencies

10 unchanged sentences

Agreed Compliance Order

In January 2024, Empire deposited $ 1.0 million

into an escrow account in accordance with an Agreed Compliance Order (“ACO”) with the New Mexico Oil Conservation Division

(“OCD”) for compliance work on certain inactive wells in New Mexico.

Under the terms of the ACO, the escrow funds will be

returned to Empire at a rate of $ 10,000 for each well as the compliance work is completed.

As of June 30, 2024, all work had been completed.

The Company expects to receive the remaining outstanding escrow amount of $ 200,000 by the end of 2024.

In January 2024, the Company

deposited $ 1.0 million into an escrow account in accordance with an Agreed Compliance Order ("ACO”) with the New Mexico Oil

Conservation Division for compliance work on certain inactive wells in New Mexico.

Under the terms of the ACO, the escrow funds will

be returned to the Company at a rate of $ 0.01 million for each well as the compliance work is completed.

As of June 30, 2024, all work

had been completed, and the Company expects to receive the remaining outstanding escrow amount of $ 0.2 million in 2025.

New Mexico Trespass

In December 2023, the Company

initiated a legal action in the Fifth Judicial District Court, Lea County, New Mexico, against a saltwater company for trespassing within

one of the New Mexico water flood units.

This suit is currently being pursued by Empire;

however, the ultimate outcome of the litigation

cannot be determined at this time, and no amount has been recognized due to the uncertainty of any conclusions that may arise as a result

of such action.

Note 15 – Fair Value Measurements

The following table provides

the carrying value and fair value measurement information for certain financial assets and liabilities.

The carrying values of cash,

accounts receivable, inventory, accounts payable, accrued expenses, lease liabilities, notes payables and equipment and vehicle notes

included in the accompanying unaudited interim consolidated balance sheets approximated fair value at March 31, 2025, and December 31,

2024, as applicable, and generally represent Level 2 fair values due to their short-term nature.

Therefore, such financial assets and

liabilities are not presented in the following table:

Fair Value Measurements Using:

(in thousands)

March 31, 2025 liabilities

Debt - Credit Facility

December 31, 2024 liabilities

Debt - Credit Facility

The following methods and assumptions

were used to estimate the fair values in the table above and other fair value measurements.

Derivatives - Derivative financial

instruments are carried at fair value and measured on a recurring basis.

The Company’s commodity price hedges are valued based

on discounted future cash flow models that are primarily based on published forward commodity price curves.

The fair values of

derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments

in liability positions include measures of the Company’s nonperformance risk.

Debt - The fair value of our Credit

Facility variable rate debt approximates the carrying value as the underlying prime rate changes based on prevailing market rates.

Impairment of oil and natural gas properties –

The fair value of proved and unproved oil and natural gas properties was measured using valuation techniques that convert the future

cash flows to a single discounted amount.

Significant inputs to the valuation of proved and unproved oil and natural gas properties include

estimates of:

(i) recoverable reserves;

(ii) production rates;

(iii) future operating and development costs;

(iv) future commodity prices;

and (v) a market-based weighted-average costs of capital.

The Company utilized a combination of the New York Mercantile Exchange ("NYMEX")

strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves

and other risk characteristics.

For significant acquisitions, management utilized the assistance of a third-party valuation expert to

estimate the value of the oil and natural gas properties acquired.

Asset Retirement Obligation –

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

The fair value was determined

based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation

rate and timing associated with the incurrence of these costs.

The inputs used to value oil and natural gas

properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent

Level 3 inputs.

Empire applies the provisions of fair value

measurement on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties and asset retirement

These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments

if events or changes in certain circumstances indicate that adjustments may be necessary.

No triggering events that require assessment

of such items were observed during the three months ended March 31, 2025 and 2024.

Assets and Liabilities Measured

at Fair Value on a Recurring Basis – In the determination of the fair value of the Note including the embedded conversion feature,

Empire uses a binomial lattice valuation model to value Level 3 derivative liabilities at inception and on subsequent valuation dates.

This model incorporates transaction details such as Empire’s stock price, contractual terms of the Note, and unobservable inputs

classified as Level 3 including risk-free rate and expected volatility.

Due to the subjective nature of these inputs, the fair value

measurement could differ materially under alternative assumptions.

As of the conversion option exercise date of May 24, 2024, these unobservable

inputs were 5.0% and 46.9%, respectively.

Note 16 – Segment Reporting

The Company’s operations

are managed and reported to its CEO, the Company’s CODM, on a consolidated basis.

The CEO uses consolidated net loss in assessing

performance of capital spend projects to allocate the appropriate resources to drive efficiencies and develop growth strategies.

the organizational and reporting structure, the Company has one operating segment and one reportable segment.

The CODM is provided with the

following significant segment expenses within lease operating expense on the unaudited interim condensed consolidated statements of operations:

For the Three Months Ended March 31,

(in thousands)

Production costs

Workover activity

Plugging and abandonment activity

Lease operating expense

Other segment items within

consolidated net loss are all separately disclosed on the unaudited interim condensed consolidated statements of operations.

asset information is not presented to and used by the CODM to allocate resources, assess performance or make strategic decisions.

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