Business Context and Reporting Period
Empire Petroleum Corporation (NYSE American: EP) is an independent energy company focused on optimizing developed oil and gas production in New Mexico, North Dakota, Texas, and Louisiana. This Form 10-Q covers the quarterly period ended March 31, 2026. The Company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenue | $5.10 million | $9.00 million |
| Net Loss | $(6.64) million | $(4.22) million |
| Operating Cash Flow | $(0.97) million | $1.61 million |
| Cash and Equivalents | $8.79 million | $1.19 million (Dec 31, 2025) |
| Total Debt (Current + Long-Term) | $14.85 million | $15.06 million (Dec 31, 2025) |
| Working Capital | $(12.0) million | $(16.2) million (Dec 31, 2025) |
| Net Production (Boe) | 169,197 | 184,400 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 41% year-over-year to $5.10 million. This was driven by a 66% drop in gas sales (due to depressed natural gas prices in New Mexico) and a 9% drop in oil sales (due to lower production volumes and realized prices).
- Increased Net Loss: Net loss widened to $6.64 million from $4.22 million. Key contributors included a $2.59 million unrealized loss on commodity derivatives and a $0.66 million loss on the extinguishment of related-party debt.
- Cost Reductions: Lease operating expenses decreased 11% to $5.16 million, and General and Administrative expenses (excluding stock-based compensation) decreased 10% to $2.88 million, primarily due to lower production volumes and reduced headcount.
- Capital Structure: The Company raised approximately $10.0 million in gross proceeds via a subscription rights offering in March 2026. Additionally, a $3.0 million related-party convertible note was fully converted into common stock during the quarter.
Outlook, Risks, and Management Commentary
- Going Concern: Management has expressed substantial doubt about the Company's ability to continue as a going concern for the next 12 months due to negative working capital and insufficient expected operating cash flows. However, this doubt is alleviated by committed financial support from major related-party stockholders (Mr. Mulacek and Energy Evolution).
- Liquidity: As of March 31, 2026, the Company had $8.79 million in cash and approximately $2.7 million of unused capacity on its revolving credit facility. The credit facility commitment reduces by $0.25 million monthly.
- Hedging: The Company entered into oil commodity derivative positions for the remaining three quarters of 2026 at a blended price of $73.83 per barrel to mitigate price volatility.
- Future Financing: Subsequent to the quarter, the Company entered into a sales agreement to sell up to $7.5 million of common stock through an at-the-market offering.
- Legal Proceedings: A civil action regarding breach of contract was resolved and dismissed in May 2026. The Company is also engaged in an Agreed Compliance Order with the New Mexico Oil Conservation Division regarding inactive wells.
Investor Verification Checklist
- Verify the status and terms of the committed financial support from related parties (Mr. Mulacek and Energy Evolution) to sustain operations.
- Monitor the monthly reduction of the revolving credit facility commitment and the Company's ability to maintain covenant compliance.
- Assess the impact of the $2.59 million unrealized derivative loss on future earnings as contracts mature.
- Review the progress of the New Mexico compliance work to determine the timeline for the release of the remaining $0.2 million escrow funds.
- Track the execution of the at-the-market offering and the rights offering proceeds to gauge liquidity improvements.