What changed in this filing

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Item 1. Financial Statements

2026-05-14 compared with 2025-11-14 · 215 added, 235 removed, 495 unchanged (48% of the section changed)

3 unchanged sentences

(in thousands, except share data)

September 30,

Current Assets:

12 unchanged sentences

Accrued Expenses

Commodity Derivative Instruments

Current Portion of Lease Liability

4 unchanged sentences

Long-Term Lease Liability

Derivative Instruments (Note 8)

Financial Derivative Instrument

Asset Retirement Obligations

6 unchanged sentences

Accumulated Deficit

Total Stockholders’ Equity

Total Stockholders’ Equity (Deficit)

Total Liabilities and Stockholders’ Equity

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except shares data)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Natural Gas Liquid (“NGL”) Sales

(in thousands, except share and per share data)

For the Three Months Ended March 31,

Natural Gas Liquids Sales

Total Product Revenues

Gain (Loss) on Derivatives

Loss on Derivatives

Total Revenue

12 unchanged sentences

Interest Expense

Loss on Extinguishment of Debt (Note 8)

Other Income (Expense)

5 unchanged sentences

EMPIRE PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

Preferred Stock

1 unchanged sentence

Balances, December 31, 2025

Stock-Based Compensation

Balances, March 31, 2025

Stock-Based Compensation

Balances, June 30, 2025

Conversion of Option to Purchase (Note 3)

Conversion of Convertible Debt to Shares (Note 8)

Rights Offering (Note 10)

Stock-Based Compensation

Debt Discount Related to Warrants (Note 8)

Balances, September 30, 2025

Balances, March 31, 2026

Preferred Stock

3 unchanged sentences

Balances, March 31, 2025

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

Conversion of Related-Party Note (Note 10)

Stock Issued for Purchase Option (Note 3)

Stock-Based Compensation

Balances, September 30, 2024

See accompanying notes to unaudited interim condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash Flows From Operating Activities:

5 unchanged sentences

Loss on Commodity Derivatives

Settlement on or Purchases of Derivative Instruments

Loss (Gain) on Financial Derivatives (Note 8)

Net Settlements on Derivative Instruments

Gain on Financial Derivative (Note 8)

Amortization of Debt Discount on Convertible Notes

Loss on Extinguishment of Debt

Gain on Sale of Oil and Natural Gas Properties

Gain on Sale of Other Fixed Assets

8 unchanged sentences

Cash Flows From Investing Activities:

Disposal of Oil and Natural Gas Properties

Capital Expenditures - Oil and Natural Gas Properties (1)

4 unchanged sentences

Cash Flows From Financing Activities:

Borrowings on Credit Facility

Proceeds from Promissory Notes - Related Party (Note 8)

Payments on Credit Facility

Proceeds from Promissory Note - Related Party (Note 8)

Payments on Promissory Note - Related Party (Note 8)

1 unchanged sentence

Proceeds from Rights Offering, net of transaction costs (Note 10)

Net Proceeds from Warrant Exercise (Note 10)

Net Cash Provided By Financing Activities

9 unchanged sentences

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(in thousands, except share and per share data)

Note 1 – Organization and Basis of Presentation

Empire Petroleum Corporation (“Empire,” collectively with its subsidiaries) is an independent energy company operator engaged in optimizing developed production by employing field management methods to maximize reserve recovery while minimizing costs.

Empire operates the following wholly-owned subsidiaries in its areas of operations:

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

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

Empire EMSU LLC

Empire EMSU-B LLC

Empire AGU LLC

Empire NM Assets LLC

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

Empire North Dakota LLC

Empire North Dakota Acquisition LLC (“Empire NDA”)

Empire Northwest Shelf LLC

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

Empire Texas LLC

Empire Texas Operating LLC

Empire Texas Development LLC

Empire Texas GP LLC

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

Empire operates primarily from the following wholly-owned subsidiaries in its areas of operations:

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

● Empire North Dakota LLC (“Empire North Dakota”)

● Empire Texas LLC (“Empire Texas”)

● Empire Louisiana LLC (“Empire Louisiana”)

10 unchanged sentences

Liquidity and Going Concern

The Company has a revolving line of credit agreement (Note 8) with Equity Bank which requires the Company to maintain compliance with certain financial covenants computed on a quarterly and annual basis.

As of September 30, 2025, the Company was in compliance with all required covenants and projected to be in compliance with all debt covenants over the next 12 months.

However, the Company carried a negative working capital of approximately $ 8.6 million as of September 30, 2025.

While there was a slight improvement from December 31, 2024, the continued negative working capital is primarily due to costs incurred for the Starbuck Drilling Program in North Dakota, on-going unforeseen operational costs from the Company’s return-to-production program in Texas, and lower oil production in North Dakota due to redrilling activity on certain wells.

Additionally, the Company’s debt obligations continue to increase with various related parties discussed below.

To meet its obligations, the Company increased its revolver commitment to $ 20.0 million in November 2024 which had approximately $ 3.3 million remaining unused commitment as of September 30, 2025, which can be used for future obligations;

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

Further, the Company entered into a promissory note and a convertible note with Phil Mulacek in June and September 2025, respectively, for total aggregate available principal of $ 8.0 million.

Of the total $ 8.0 million available, as of September 30, 2025, $ 2.0 million is outstanding.

The Company may borrow up to an additional $ 2.0 million of the available principal at the discretion of Mr.

Mulacek, per the terms of the respective agreements.

(see Note 8).

The Company has a revolving line of credit agreement with Equity Bank which requires the Company to maintain compliance with certain financial covenants computed on a quarterly and annual basis.

As of March 31, 2026, 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 $ 12.0 million as of March 31, 2026 from previous and unforeseen operational costs resulting in lower production volumes.

Commodity prices for the majority of the first quarter 2026 were lower than the current pricing environment, further reducing operational cash flows.

To meet its obligations, the Company has a credit facility with remaining commitments of $ 16.0 million as of March 31, 2026, however, only approximately $ 2.7 million is unused as of March 31, 2026.

Additionally, the commitment is reduced monthly by $ 0.25 million.

The Company entered into a convertible note in September 2025 for total aggregate available principal of $ 4.0 million with $ 2.0 million of the total available to be borrowed but at the discretion of Mr.

Mulacek per the terms of the agreement.

The Company also issued warrants to Mr.

Mulacek in connection with the convertible note which the Company expects to be exercised (see Note 8).

Finally, a subscription rights offering was completed in August 2025, which raised approximately $ 2.5 million of gross proceeds (see Note 10).

A portion of these proceeds were used to settle $ 2.0 million of the outstanding balance of the promissory note with Mr.

Mulacek, per the terms of the note, during the third quarter.

Mulacek in connection with the convertible note.

In March 2026 the Company raised approximately $ 10.0 million of gross proceeds from a subscription rights offering and subsequent to the quarter entered into a sales agreement to sell up to an aggregate gross sales price of $ 7.5 million of shares of common stock through an at-the-market offering (see Note 10 – Equity).

While these transactions provide additional funding towards the Company’s obligations, the Company expects to have negative working capital for the remainder of 2026 and future expected operating cash flows do not sufficiently meet the Company’s obligations for the next 12 months.

1 unchanged sentence

Empire has committed financial support from Mr.

Mulacek who owns approximately 22.6 % of our common stock outstanding as of September 30, 2025, and Energy Evolution Master Fund, Ltd.

(“Energy Evolution”), our largest stockholder who owns approximately 31.3 % of our common stock outstanding as of September 30, 2025.

Both are related parties of the Company (see Note 13).

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.

Mulacek who owns approximately 29.1 % of our common stock outstanding as of March 31, 2026, and Energy Evolution Master Fund, Ltd.

(“Energy Evolution”), our largest stockholder who owns approximately 33.1 % of our common stock outstanding as of March 31, 2026.

Both are related parties of the Company.

Mulacek and Energy Evolution are willing and able to provide these additional funds 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.

29 unchanged sentences

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

The Company did not have an allowance for credit losses as of September 30, 2025.

The Company did not have an allowance for credit losses as of March 31, 2026.

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

8 unchanged sentences

If the oil and natural gas exploration and production industry in general were adversely affected, the ability of the joint interest partners to reimburse Empire could be adversely affected.

Convertible Debt and Derivative Liability

In connection with Empire’s issuance of a promissory note in the first quarter of 2024 and third quarter of 2025, Empire bifurcated the embedded conversion option and recorded the embedded conversion option as a long-term derivative liability in Empire’s unaudited interim condensed consolidated balance sheets in accordance with FASB ASC 815, Derivatives and Hedging .

The convertible debt and the derivative liability associated with the respective promissory notes were separately presented as long-term note payable – related party and long-term derivative instruments on the consolidated financial statements for the applicable periods.

The convertible debt was carried at amortized cost.

The derivative liability was remeasured at each reporting period using a binomial lattice model with changes in fair value recorded in other income (expense) of the applicable period’s unaudited interim condensed consolidated statements of operations.

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

See Note 8 for further details.

Convertible Debt and Embedded Derivative Instruments

In connection with Empire’s issuance of a promissory note in the third quarter of 2025 and first quarter of 2026, Empire bifurcated the respective embedded conversion options and recorded the embedded conversion options as long-term and short-term, respectively, derivative liabilities in Empire’s unaudited condensed consolidated balance sheets in accordance with FASB ASC 815, Derivatives and Hedging.

The derivative liability for the promissory note issued in the third quarter of 2025 was remeasured at each respective reporting period using a binomial lattice model with changes in fair value recorded in other income (expense) of the applicable period’s unaudited condensed consolidated statements of operations.

The convertible debt for the promissory notes issued were carried at amortized cost.

The convertible debt and the derivative liability associated with the promissory note issued in the third quarter of 2025 is separately presented as long-term note payable – related party and long-term derivative instruments on the unaudited condensed consolidated financial statements.

The promissory note issued in first quarter of 2026 was fully converted into common shares of the Company in the same period.

The Company issued warrants with the promissory note in the third quarter of 2025 and determined they shall be classified as equity in accordance with FASB ASC 815, Derivatives and Hedging.

The warrants were recorded as a discount to the long-term note payable – related party and presented as net on the unaudited interim condensed consolidated balance sheets.

The warrants were recorded as a discount to the long-term note payable – related party and presented as net on the unaudited condensed consolidated balance sheets.

The value of the discount was determined by using a Black-Scholes model and recorded at its estimated relative fair value on the date the warrants were issued.

It will be amortized over the life of the corresponding promissory note within interest expense in the unaudited interim condensed consolidated statements of operation.

See Note 8 for further details.

The Company enters into hedge agreements from time to time to manage its exposure to oil and natural gas price fluctuations.

The fair value of derivative contracts is recognized as an asset or liability on the Company’s unaudited interim condensed consolidated balance sheets.

It will be amortized over the life of the corresponding promissory note within interest expense in the unaudited condensed consolidated statements of operations.

Commodity Derivative Instruments

From time to time 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.

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 as a component of revenue in the unaudited condensed consolidated statements of operations.

Oil and Natural Gas and Other Properties

51 unchanged sentences

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

For the nine months ended September 30, 2025 and 2024, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

For the three months ended March 31, 2026 and 2025, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

Segment Reporting

12 unchanged sentences

and other parties that can significantly influence the management or operating policies of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

See Note 13 for a listing of related party transactions.

See Note 13 – Related Party Transactions for a listing of related party transactions.

Fair Value Measurements

11 unchanged sentences

Empire reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level.

There were no transfers between fair value hierarchy levels for the nine months ended September 30, 2025.

There were no transfers between fair value hierarchy levels for the three months ended March 31, 2026.

Recently Issued Accounting Standards

The FASB periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting.

Empire has reviewed the recently issued pronouncements and concluded that the following new accounting standards updates are applicable:

In December 2023, FASB, issued ASU 2023-09, Income Taxes:

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

The guidance in Topic 740 improves the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.

The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted and should be applied prospectively but can be adopted retrospectively.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Empire has reviewed the recently issued pronouncements and concluded that the following standards are applicable:

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.

4 unchanged sentences

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

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

Induced Conversions of Convertible Debt Instruments , to improve the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20.

ASU 2024-04 is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods.

Early adoption is permitted as of the beginning of the annual reporting period for all entities that have adopted ASU 2020-06 and may be adopted either on a prospective or retrospective basis.

The Company early adopted this ASU on January 1, 2025, on a prospective basis and determined it did not have a material impact on the period’s consolidated financial statements.

In December 2025, FASB issued ASU 2025-12, Codification Improvements .

ASU 2025-12 is the latest in a series of updates that the FASB made to the existing GAAP literature to amend or supplement that literature related to minor change and corrections that have identified and made amendments to thirty-three ASC topics.

This ASU is effective for annual reporting periods that begin after December 31, 2026, and interim periods within those annual reporting periods.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosure.

Note 3 – Property

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

September 30,

Proved properties

4 unchanged sentences

Total Oil and gas properties, net

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

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

Depletion and amortization expense related to oil and gas properties for the three months ended March 31, 2026 and 2025, was approximately $ 1.3 million and $ 2.1 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 nine months ended September 30, 2025.

On April 9, 2024, Empire acquired 60 % of certain New Mexico interests from Energy Evolution.

As consideration, Empire issued Energy Evolution 600,000 shares of common stock of Empire based on an agreed upon price of $ 5.00 per share for an aggregate agreed upon value of $ 3.0 million.

On August 8, 2024, Empire extended its right to acquire the remaining interest for an exercise price of $ 2.0 million (the “Purchase Option”) by one year with the issuance of 16,800 shares of common stock (the “Option Shares”) to Energy Evolution.

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

There were no indicators of impairment identified during the three months ended March 31, 2026.

On May 1, 2025, the Company extended its option to purchase certain New Mexico interests from Energy Evolution to allow for payment for such extension to be made in cash in lieu the issuance of common shares, due and payable on or before September 30, 2025.

The Company made a cash payment to Energy Evolution on September 30, 2025 to extend the purchase option for an additional year .

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

On December 10, 2025, the Company entered into a letter agreement with Energy Evolution to acquire the remaining 40 % of certain New Mexico interests and closed on the transaction on January 5, 2026.

As consideration, Empire issued 562,500 shares of common stock based on an agreed upon price of $ 3.20 per share for an aggregate agreed upon value of $ 1.8 million.

In January 2026, Empire paid approximately $ 0.1 million for certain interests in undeveloped properties in North Dakota.

The transaction is subject to customary regulatory procedures and will not be finalized until all proceedings are completed.

On March 18, 2026, Empire elected to participate in a three-well oil and natural gas development program in Louisiana for a 25 % working interest with various related parties.

Participation will be funded by issuance of up to approximately 1.8 million shares of Empire common stock at a price of $ 3.00 per share.

Other property and equipment consists of operating lease assets, vehicles, office furniture, and equipment with lives ranging from three to five years .

The capitalized costs of other property and equipment are as follows:

September 30,

Other property and equipment, at cost

1 unchanged sentence

Total Other property and equipment, net

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

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

Depreciation expense related to other property and equipment for the three months ended March 31, 2026 and 2025, was approximately $ 0.1 million for both periods.

Note 4 – Asset Retirement Obligations

2 unchanged sentences

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Asset retirement obligations, beginning of period

Liabilities incurred from drilling activity and assumed in acquisitions

Liabilities settled from plugging activity and disposals

Liabilities assumed in acquisition

Liabilities settled from plugging activity

Accretion expense

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Asset retirement obligations, long-term

The liabilities incurred from drilling activity in 2024 primarily relate to the completion of new wells as part of Empire’s North Dakota Starbuck Drilling Program.

The liabilities assumed in acquisitions in 2024 relate to additional working interest acquired in New Mexico.

(see Note 3).

The liabilities settled from disposals in 2025 relate to the divestiture of certain non-core oil and natural gas properties further described in Note 3.

There were no liabilities settled from disposals in 2024.

The liabilities assumed in acquisition in 2026 relate to the acquisition of the remaining 40 % of certain New Mexico interests which closed on January 5, 2026 (see Note 3 – Property).

Note 5 – Commodity Derivative Financial Instruments

The Company has used derivative financial instruments to manage its exposure to commodity price fluctuations in the past.

Commodity derivative instruments have been used to reduce the effect of volatility of price changes on the oil and natural gas the Company produces and sells.

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

The Company’s derivative financial instrument activity has consisted of swaps and put options.

The Company uses derivative financial instruments to manage its exposure to commodity price fluctuations in the past.

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

The Company generally does not enter into derivative financial instruments for speculative or trading purposes.

The Company’s derivative financial instrument activity consists of swaps and put options.

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

2 unchanged sentences

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.

During the three months ended March 31, 2026, we entered into certain oil commodity derivative positions for the remaining three quarters of 2026 at a blended price of $ 73.83 .

We did not have any open derivative positions during 2025.

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Gain on derivatives, realized

Gain (loss) on derivatives, unrealized

Gain (loss) on derivatives, net

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Cash settlements received on oil derivatives, net

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

For the Three Months Ended March 31,

Settlements received (paid) for matured derivatives, net

Non-cash gain (loss) on derivatives, net

Loss on derivatives, net

The following table sets forth the Company’s outstanding commodity derivative contracts as of March 31, 2026:

Weighted-Average

Volume (Bbls)

Fixed Price (Bbl)

Second Quarter

Third Quarter

Fourth Quarter

Note 6 – Accounts Receivable

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

September 30,

Oil, Gas and NGLs receivables

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

September 30,

Accrued and suspended third-party revenue

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Asset retirement obligations - current

Accrued legal costs

Total Accrued expenses

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

September 30,

Equity Bank Credit Facility

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

Notes Payable to insurance provider (1)

Equipment and vehicle notes, 4.46 % to 9.59 % interest rates, due in 2026 to 2031 with monthly payments ranging from $ 900 to $ 1,500 per month (2)

Current Maturities

Current Maturities on Credit Facility

Current Maturities on Notes Payable, Equipment and Vehicle Notes

Long-Term Debt

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

(1) Interest rate of 7.98 % and 8.25 % as of March 31, 2026 and December 31, 2025, respectively.

Respective notes have monthly payments of principal and interest of $ 57,301 and $ 58,103 and matures in January 2027 and January 2026.

(2) Weighted-average interest rate of 9.26 % and 9.41 % as of March 31, 2026 and December 31, 2025, respectively.

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

September 30,

Promissory Note - Related Party

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

On December 29, 2025, the Company entered into the Third Amendment to the Credit Facility (the “Third Amendment”).

Pursuant to the Third Amendment, among other things, (a) the final maturity date was extended to December 29, 2028, (b) Borrowers delivered a replacement promissory note, (c) Empire Texas Development LLC executed and delivered an amended and restated security agreement, (d) Borrowers paid a fully earned and non-refundable loan extension fee of $ 0.05 million, and (e) the Company executed and delivered guarantor acknowledgment and ratification.

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

At September 30, 2025, the Borrowers were in compliance with all required covenants under the Credit Facility.

At March 31, 2026, the Borrowers were in compliance with all required covenants under the Credit Facility.

Promissory Note – Related Party

On February 16, 2024, Empire issued a promissory note (the “February Note”) in the aggregate principal amount of $ 5.0 million to Energy Evolution with a maturity date of February 15, 2026, (the “February Maturity Date”) and accrues interest at the rate of 7 % per annum beginning March 31, 2024, and on each subsequent quarter end date until the February Maturity Date paid in the form of cash or shares of common stock at the option of Energy Evolution.

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

The February Note carries no penalties for prepayment without the consent of Energy Evolution if Empire provides written notification within at least five business days.

At the discretion of Energy Evolution all or any portion of the outstanding principal amount of the February Note may be converted into shares of common stock at a conversion price of $ 6.25 per share, subject to customary adjustments, up to a maximum conversion shares amount of 800,000 (without giving effect to any interest that may be converted).

Empire determined that an embedded conversion feature included in the February Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value.

The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $ 1.3 million as of March 31, 2024, and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 15.

Accordingly, Empire recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $ 0.7 million.

The conversion option was exercised by Energy Evolution on May 24, 2024, in exchange for 800,000 shares of common stock of the Company under the terms of the February Note and the fair value of the derivative was revalued as of that date resulting in a loss of $ 1.7 million in 2024.

All of the other embedded features of the February Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.

On June 17, 2025 (the “Original Issue Date”), the Company issued a promissory note (the “June Note”) in the aggregate principal amount of $ 4.0 million to Mr.

As of June 17, 2025, Mr.

Mulacek has advanced the Company $ 2.0 million under the June Note (the “Original Issue Date Advance”).

On the Original Issue Date, Mr.

Mulacek advanced the Company $ 2.0 million under the June Note (the “Original Issue Date Advance”).

From time to time, during the period beginning 45 days after the Original Issue Date and ending 90 days after the Original Issue Date, the Company may request in writing that Mr.

2 unchanged sentences

Mulacek shall either advance the funds requested (an “Additional Advance”) or decline to make such additional advance.

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

The June Note may be prepaid at any time without the consent of Mr.

Mulacek and without penalty or premium.

5 unchanged sentences

In the event the Company receives proceeds from the sale of any of its equity after an Equity Raise Repayment and an Additional Advance, the Company shall use such proceeds to promptly repay such Additional Advance, and all accrued and unpaid interest thereon, to Mr.

In August 2025, Empire completed an Equity Raise further described in Note 10 and repaid the outstanding June Note balance and all accrued and unpaid interest.

In August 2025, Empire completed an Equity Raise and repaid the outstanding June Note balance and all accrued and unpaid interest.

On September 24, 2025, Empire issued a convertible promissory note (the “September Note”) in the aggregate principal amount of $ 4.0 million to Mr.

8 unchanged sentences

The conversion price for each subsequent advance shall be determined per the terms of the amendment on November 5, 2025.

Empire determined that an embedded conversion feature included in the September Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value.

The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $ 0.7 million as of September 30, 2025, and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 15.

Accordingly, Empire recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $ 0.1 million.

The Company repaid the full outstanding balance and all related interest in February 2026.

A loss on extinguishment of debt of approximately $ 0.7 million was recorded in connection with repayment.

The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $ 0.3 million as of December 31, 2025, and was determined using a binomial lattice model using certain assumptions and inputs.

Accordingly, Empire recognized total gains on the fair value adjustment of the derivative liability in the amount of approximately $ 0.6 million for the year ended December 31, 2025, reflected within other income (expense) on the unaudited interim condensed consolidated statements of operations.

The embedded derivative was revalued prior to the September Note being repaid and a gain of approximately $ 0.1 million was recorded in the first quarter of 2026.

All of the other embedded features of the September Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.

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Empire determined the warrants shall be classified as equity and accounted for as a discount to the outstanding September Note balance at its relative fair value and amortized over the life of the September Note.

The amortization shall be recognized within interest expense in the unaudited interim condensed consolidated statements of operations.

The estimated relative fair value of the warrants was approximately $ 0.4 million and determined using a Black-Scholes model with certain assumptions and inputs discussed in Note 15.

The amortization shall be recognized within interest expense in the consolidated statements of operations.

The estimated relative fair value of the warrants on the date the warrant certificate was issued was approximately $ 0.4 million and determined using a Black-Scholes model with certain assumptions and inputs discussed in Note 15 – Fair Value Measurements.

On the amendment date of November 5, 2025, the warrants were revalued using a Black-Scholes model to approximately $ 0.1 million.

As of December 31, 2025, the unamortized discount was approximately $ 0.1 million.

The remaining unamortized discount was fully amortized during the first quarter of 2026 once the September Note was repaid.

On February 19, 2026, Empire issued a convertible promissory note (the “February 2026 Note”) in the aggregate principal amount of $ 3.0 million to Mr.

Mulacek with a maturity date of May 19, 2026, and accrues interest at the rate of 5.5 % per annum until the earlier of the date Mr.

Mulacek elects to convert some or all of the February 2026 Note or the maturity date paid in cash.

Any unpaid balance after the maturity date accrues interest at 9 % per annum.

The February 2026 Note carries no penalties for prepayment without the consent of Mr.

Mulacek if Empire provides written notification within at least five business days.

At the discretion of Mr.

Mulacek all or any portion of the outstanding principal amount of the February 2026 Note may be converted into shares of common stock at a conversion price of $ 2.99 per share, subject to customary adjustments up to a maximum conversion shares amount of 1,003,344 .

In March 2026, Mr.

Mulacek converted the full February 2026 Note for total common shares of 1,003,344 in accordance with the terms of the February 2026 Note.

The Company also paid all outstanding interest in cash.

Empire determined that an embedded conversion feature included in the February 2026 Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value and revalued at each reporting period.

The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $ 0.2 million on February 19, 2026, and was determined using a binomial lattice model using certain assumptions and inputs .

Upon conversion, the embedded derivative liability was removed.

All of the other embedded features of the February 2026 Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.

Note 9 – Leases

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Therefore, the period covered by such optional period is not included in the determination of the term of the lease and the lease payments during these periods are similarly excluded from the calculation of right-of-use lease asset and lease liability balances.

The Company also leases vehicles primarily used in our field operations.

These vehicle leases typically have a three-year life.

The Company leases vehicles primarily used in our field operations, which typically have a three-year life.

We also entered into an equipment lease during the first three months of 2026 and another one subsequent to March 31, 2026.

Each equipment lease has a two-year life with an option to purchase at the end of the respective lease.

The option to purchase is generally not considered reasonably certain to be exercised and therefore not included in the determination of the lease.

The Company recognizes right-of-use lease expense on a straight-line basis, except for certain variable expenses that are recognized when the variability is resolved, typically during the period in which they are paid.

Variable right-of-use lease payments typically include charges for property taxes, insurance, and variable payments related to non-lease components, including common area maintenance.

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

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

Right-of-use lease expense was approximately $ 0.1 million for both the three months ended March 31, 2026 and 2025, and cash paid for right-of-use lease was approximately $ 0.1 million for the same respective periods.

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

September 30,

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

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Total right-of-use lease liabilities

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

The weighted-average remaining term for Empire’s right-of-use leases is 1.29 years, and the weighted-average discount rate is 6.11 % as of the first quarter of 2026.

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

September 30,

Total lease payments

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

All share amounts have retrospectively been stated at post-reverse split amounts and pricing.

The holders of shares of common stock are entitled to one vote per share for all matters on which common stockholders are authorized to vote on.

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

In April 2024, Empire completed a subscription rights offering (the “April Rights Offering”) which raised gross proceeds of $ 20.7 million.

Empire distributed at no charge to holders of its common stock, as of the close of business on March 7, 2024 (the record date for the April Rights Offering), one subscription right for each share of common stock held.

Each subscription right entitled the holder to purchase 0.161 shares of common stock at a subscription price of $ 5.00 per share per one whole share of common stock.

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

On May 31, 2024, Empire issued Energy Evolution a warrant certificate granting them the right to purchase 128,800 shares of common stock of Empire at $ 5.00 per share.

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

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

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

Empire distributed at no charge to holders of its common stock, as of the close of business on September 30, 2024 (the record date for the November Rights Offering), one subscription right for each share of common stock held.

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

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

In August 2025, Empire completed a subscription rights offering (the “August Rights Offering”) which raised gross proceeds of $ 2.5 million.

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No fractional shares of common stock are issued in the rights offering, including upon exercise of the warrants.

The subscription rights were initially set to expire if they were not exercised or extended at the discretion of the Company by July 25, 2025 (the “Expiration Date”).

The Expiration Date was subsequently extended to August 20, 2025 (the “Extension Date”).

The warrants will expire 90 days after the Extension Date.

As of September 30, 2025, the warrants had no t been exercised.

The subscription rights were initially set to expire if they were not exercised or extended at the discretion of the Company by July 25, 2025;

however, this date was subsequently extended to August 20, 2025.

The warrants expired 90 days after the August Extension Date.

No warrants were exercised.

On September 24, 2025, and as amended on November 5, 2025, Empire issued Mr.

Mulacek a warrant certificate granting him the right to purchase up to 138,889 shares of common stock of Empire at $ 4.32 per share in conjunction with the September Note further described in Note 8.

Mulacek a warrant certificate granting him the right to purchase up to 138,889 shares of common stock of Empire at $ 4.32 per share in conjunction with the September Note further described in Note 8 – Debt including Debt with Related Parties.

The warrant certificate expires on September 24, 2028.

On December 10, 2025, Empire entered into a letter agreement with Energy Evolution to acquire the remaining 40 % of certain New Mexico interests and closed the transaction on January 5, 2026.

As consideration, the Company issued 562,500 shares of common stock on January 5, 2026, which is the closing date of the letter agreement, based on an agreed upon price of $ 3.20 per share for an aggregate agreed upon value of $ 1.8 million.

In February 2026, Empire announced a subscription rights offering which was expected to raise gross proceeds of $ 6.0 million.

Empire distributed at no charge to holders of its common stock, as of the close of business on February 2, 2026 (the record date), one non-transferable subscription right for each whole share of common stock owned by that stockholder on the record date.

Each subscription right entitled the holder to purchase 0.057 shares of common stock at a subscription price of $ 2.99 per whole share.

The offering includes an oversubscription privilege, which entitles stockholders who fully exercise their subscription rights the right to purchase at the same exercise price additional units in the rights offering that other stockholders do not purchase, subject to availability and pro-rata allocation of units among rights holders exercising such oversubscription privilege.

No fractional shares of common stock will be issued in the rights offering.

The subscription rights were set to expire if they were not exercised or extended at the discretion of the Company by February 27, 2026.

On February 25, 2026, the subscription rights offering was modified to entitle each holder to purchase 0.095 shares of common stock at a subscription price of $ 2.99 per one whole share of common stock for gross proceeds of up to approximately $ 10.0 million.

The expiration date was also extended to and completed on March 18, 2026.

In March 2026, Mr.

Mulacek converted the full February 2026 Note for total common shares of 1,003,344 in accordance with the terms of the February 2026 Note.

On May 1, 2026, the Company entered into a sales agreement with Roth Capital Partners, LLC ("Roth"), as sales agent and/or principal, under which the Company may sell from time to time shares of the Company's common stock having an aggregate offering price of up to $ 30.0 million in at-the-market offerings through or to Roth.

Such shares will be issued pursuant to the Company's shelf registration statement on Form S-3 previously filed with the SEC and declared effective on September 22, 2023 (the “2023 S-3 Registration Statement”).

Under the 2023 S-3 Registration Statement, as of May 1, 2026, the Company is able to offer and sell shares of common stock having an aggregate gross sales price of up to $ 7.5 million from time to time in an at-the-market offering at prices and terms to be determined at the time of the sale.

All proceeds are subject to customary agency fees.

Loss per Common Share

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Basic Weighted-Average Shares

Effect of Dilutive Securities:

Dilutive effect of potential common shares issuable (1)

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Loss per Common Share

(1) For the three and nine months ended September 30, 2025, the Company had approximately 0.5 million and 0.6 million, respectively, of stock options, warrants, outstanding restricted stock units, and convertible debt excluded from the diluted shares calculation as their inclusion would be antidilutive due to a net loss for the respective periods.

For both the three and nine months ended September 30, 2024, the Company had approximately 1.0 million of stock options, warrants, outstanding restricted stock units, and convertible debt as their effect would have been anti-dilutive due to a net loss for the respective periods.

(1) For the three months ended March 31, 2026, the Company had approximately 0.3 million of stock options, warrants, and outstanding restricted stock units excluded from the diluted shares calculation as their inclusion would be antidilutive due to a net loss for the period.

For the three months ended March 31, 2025, the Company had approximately 1.1 million of stock options, warrants, outstanding restricted stock units, and convertible debt as their effect would have been anti-dilutive due to a net loss for the period.

Note 11 – Stock-Based Compensation

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Outstanding, December 31, 2025

Outstanding, September 30, 2025

Outstanding, March 31, 2026

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

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Outstanding, December 31, 2025

Outstanding, September 30, 2025 (1)

Exercisable, September 30, 2025 (1)

Outstanding, March 31, 2026 (1)

Exercisable, March 31, 2026 (1)

(1) Stock options outstanding and exercisable had an aggregate intrinsic value of ($ 3.4 ) million and ($ 2.8 ) million, respectively.

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

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

In November 2025, Mr.

Mulacek exercised 589,100 stock options at an exercise price of $ 1.32 .

(2) Stock options outstanding at March 31, 2026, had a weighted-average remaining contract term of 3.16 years.

(3) Stock options outstanding at March 31, 2026, had an exercise price range of $ 1.32 to $ 12.36 .

Note 12 – Income Taxes

The Company operates exclusively within the U.S and is subject to U.S.

federal and various state income tax.

Any impacts of state income taxes is primarily attributable to New Mexico and North Dakota, which together represent more than 50% of the total state tax effect for the three months ended March 31, 2026 and 2025.

The Company did no t have any current or deferred tax expense for the three months ended March 31, 2026 and 2025.

Additionally, as a result of the continued net operating losses, we have made no cash payments of U.S.

federal or state income taxes, net of refunds, for the same respective periods.

For all periods presented in the unaudited interim condensed consolidated statements of operations, Empire’s effective tax rate is 0 %.

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Among other provisions, the OBBBA includes permanently restoring an EBITDA-based business interest deduction limitation, 100% bonus depreciation for certain property and immediate expensing for certain domestic research and experimental expenditures.

The impacts of these changes are reflected within income tax provision (benefit) on the unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2025.

While we continue to monitor further legislative developments and administrative guidance, we do not expect the OBBBA to have a material impact on our consolidated financial statements for the year ending December 31, 2025.

The impacts of these changes are reflected within income tax provision (benefit) on the unaudited interim condensed consolidated statements of operations for the three months ended March 31, 2026 and 2025.

We continue to monitor further legislative developments and administrative guidance.

Note 13 – Related Party Transactions

Energy Evolution is a related party of the Company as it beneficially owns approximately 31.3 % of the Company’s outstanding shares of common stock as of September 30, 2025.

Energy Evolution is a related party of the Company as it beneficially owns approximately 33.1 % of the Company’s outstanding shares of common stock as of March 31, 2026.

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

The board member of Energy Evolution separately beneficially owns approximately 22.6 % of the Company’s outstanding shares of common stock as of September 30, 2025, and is also a majority owner of PIE.

The Company had a JDA with PIE to perform recompletion or workover on specified mutually agreed upon wells.

In the third quarter of 2024, Empire issued PIE 205,427 shares of common stock of Empire as payment in full for this outstanding note balance of $ 1.1 million (see Note 10).

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

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

On May 24, 2024, Energy Evolution elected to convert the February Note to shares of common stock of Empire and received 800,000 shares under the terms of the February Note (see Note 8).

On April 9, 2024, Empire acquired 60 % of certain New Mexico interests from Energy Evolution.

As consideration, Empire issued Energy Evolution 600,000 shares of common stock of Empire based on an agreed upon price of $ 5.00 per share for an aggregate agreed upon value of $ 3.0 million.

On August 8, 2024, Empire successfully extended its option to purchase the remaining interest with the issuance of 16,800 shares of common stock to Energy Evolution, and as such, Empire has the right to acquire the remaining interest for an exercise price of $ 2.0 million.

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

The Company made a cash payment to Energy Evolution on September 30, 2025 to extend the Purchase Option for an additional year.

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

The board member of Energy Evolution separately beneficially owns approximately 29.1 % of the Company’s outstanding shares of common stock as of March 31, 2026, and is also a majority owner of Petroleum & Independent Exploration, LLC and related entities (“PIE”).

The Company has a shared services agreement with PIE that includes access to administrative, engineering and support-services as well as building and insurance services.

The agreement provides that the Company will reimburse PIE for the out-of-pocket costs incurred by PIE in providing such services to the Company.

On June 17, 2025, the Company issued the June Note to Mr.

Mulacek advanced Empire $ 2.0 million under the June Note in the second quarter of 2025 (see Note 8).

In August 2025, Empire completed an Equity Raise further described in Note 10 and repaid the outstanding June Note balance and all accrued and unpaid interest.

Mulacek advanced Empire $ 2.0 million under the June Note in the second quarter of 2025.

In August 2025, Empire completed an Equity Raise and repaid the outstanding June Note balance and all accrued and unpaid interest.

On September 24, 2025, Empire issued the September Note to Mr.

Mulacek advanced Empire $ 2.0 million under the September Note in the third quarter of 2025 (see Note 8).

Mulacek advanced Empire $ 2.0 million under the September Note in the third quarter of 2025.

The note was fully repaid in February 2026.

On September 24, 2025, and as amended on November 5, 2025, Empire issued Mr.

Mulacek a warrant certificate granting him the right to purchase up to 138,889 shares of common stock of Empire at $ 4.32 per share (see Note 8).

Accounts receivable on the unaudited interim condensed consolidated balance sheet includes approximately $ 0.7 million receivables from Energy Evolution.

Accrued expenses on the unaudited interim condensed consolidated balance sheet include approximately $ 0.1 million of revenue payable to Energy Evolution.

Mulacek a warrant certificate granting him the right to purchase up to 138,889 shares of common stock of Empire at $ 4.32 per share.

On January 5, 2026, the Company issued 562,500 shares of common stock at an agreed upon price of $ 3.20 per share to Energy Evolution to acquire the remaining 40% of certain New Mexico interests.

On February 19, 2026, Empire issued the February 2026 Note to Mr.

Mulacek in the amount of $ 3.0 million.

The note matures on May 19, 2026, at an interest rate of 5.5 % per annum.

In March 2026, Mr.

Mulacek fully converted the outstanding balance at a contractual conversion price of $ 2.99 per common share of Empire’s stock for total shares of 1,003,344 .

On March 18, 2026, Empire elected to participate in a three-well oil and natural gas development program in Louisiana for a 25 % working interest with various related parties.

Participation will be funded by issuance of up to approximately 1.8 million shares of Empire common stock at a price of $ 3.00 per share.

Note 14 – Commitments and Contingencies

From time to time, Empire is subject to various legal proceedings arising in the ordinary course of business, including proceedings for which Empire may not have insurance coverage.

While many of these matters involve inherent uncertainty, as of the date hereof, Empire does not currently believe that any such legal proceedings will have a material adverse effect on Empire’s business, financial position, results of operations or liquidity.

Empire is subject to extensive federal, state, and local environmental laws and regulations.

These laws, among other things, regulate the discharge of materials into the environment and may require Empire to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

The Company is subject to extensive federal, state, and local environmental laws and regulations.

These laws, among other things, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

Management believes no materially significant liabilities of this nature existed as of the balance sheet date.

From time to time, the Company is subject to various legal proceedings arising in the ordinary course of business, including proceedings for which the Company may not have insurance coverage.

While many of these matters involve inherent uncertainty, we evaluate legal proceedings on a regular basis and accrue a liability for such matters when the Company believes that a loss is probable, and the amount of the loss can be reasonably estimated.

Any such accruals are adjusted thereafter to reflect changed circumstances.

In the event the Company determines that (i) a loss to the Company is probable but the amount of the loss cannot be reasonably estimated, or (ii) a loss to the Company is less likely than probable but is reasonably possible, then the Company is required to disclose the matter herein, although the Company is not required to accrue such loss.

As of the date hereof, the Company does not currently believe that any such legal proceedings will have a material adverse effect on the Company’s business, financial position, results of operations or liquidity other than the following matter:

On April 23, 2024, the Company was named as a defendant in civil action alleging breach of contract and unjust enrichment relating to certain services and equipment provided to the Company.

As of December 31, 2025, the Company accrued approximately $ 0.8 million associated with the resolution of this matter, including related legal fees.

A portion of this accrual was paid in March 2026 with the remaining portion paid in April 2026.

The matter was fully resolved and dismissed on May 1, 2026.

Agreed Compliance Order

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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.

Empire is continuing to work with the NMOCD for all remaining compliance work to satisfy all requirements under the ACO and receive the remaining outstanding escrow amount of $ 0.2 million.

New Mexico Trespass

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The following table provides the carrying value and fair value measurement information for certain financial assets and liabilities.

The carrying values of cash, accounts receivable, inventory, accounts payable, accrued expenses, lease liabilities, notes payables and equipment and vehicle notes included in the accompanying unaudited interim consolidated balance sheets approximated fair value at September 30, 2025, and December 31, 2024, as applicable, and generally represent Level 2 fair values due to their short-term nature.

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, 2026, and December 31, 2025, 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:

September 30, 2025 liabilities

March 31, 2026 liabilities

Debt - Credit Facility

Debt - Convertible Promissory Note - Related Party, excluding debt discount

Derivative Instrument - Commodity Derivatives

Derivative Instrument - Embedded Derivative

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Debt - Convertible Promissory Note - Related Party, excluding debt discount

Derivative Instrument - Commodity Derivatives

Derivative Instrument - Embedded Derivative

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

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

Commodity 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.

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.

See below for discussion on the fair value determination of the related party promissory note.

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.

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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.

The Company utilized a combination of the New York Mercantile Exchange 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.

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The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

The inputs used to value oil and natural gas properties for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

Empire applies the provisions of fair value measurement on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties and asset retirement obligations.

These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary.

No triggering events that require assessment of such items were observed during the nine months ended September 30, 2025 and 2024.

Warrants – The fair value of the warrants issued in connection with the September Note further described in Note 8 was measured using a Black-Scholes option pricing model.

No triggering events that require assessment of such items were observed during the three months ended March 31, 2026 and 2025.

Warrants – The fair value of the warrants issued in connection with the September Note further described in Note 8 – Debt Including Debt with Related Parties was measured using a Black-Scholes option pricing model.

Key inputs for the Black-Scholes model include the stock price, exercise price, expected term, risk-free rate, volatility, and dividend yield.

We consider this a Level 3 measurement within the fair value hierarchy as estimated volatility is generally unobservable and requires estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis – In the determination of the fair value of the February Note and the September Note discussed further in Note 8 including the embedded conversion feature, Empire used a binomial lattice valuation model to value Level 3 derivative liabilities at inception and on subsequent valuation dates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis – In the determination of the fair value of the September Note and the February 2026 Note including the embedded conversion features, Empire used a binomial lattice valuation model to value Level 3 derivative liabilities at inception and on subsequent valuation dates.

This model incorporates transaction details such as Empire’s stock price, contractual terms of the respective notes, and unobservable inputs classified as Level 3 including risk-free rate and expected volatility.

As of the conversion option exercise date of May 24, 2024 related to the February Note, these unobservable inputs were 5.0 % and 46.9 %, respectively.

Due to the subjective nature of these inputs, the fair value measurement could differ materially under alternative assumptions.

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Production costs

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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