Business Context and Reporting Period
Company: Empire Petroleum Corporation (EMPR)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2012
Business Overview: The Company is an exploration-stage oil and gas entity with no producing wells. Operations focus on two unproven prospects: the Gabbs Valley Prospect in Nevada (34,186 gross acres) and the South Okie Prospect in Wyoming (110 net acres). The Company has incurred significant losses since inception and relies on equity sales and related-party loans for funding.
Key Financial Metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(253,348) | $(247,432) |
| Cash and Cash Equivalents | $20,766 | $4,978 |
| Total Assets | $324,397 | $326,930 |
| Total Liabilities | $10,135 | $111,487 |
| Accumulated Deficit | $(14,259,901) | $(14,006,553) |
| Shares Outstanding | 91,564,485 | 85,564,235 |
Liquidity: Cash on hand ($20,766) is insufficient to fund operations for the next 12 months. The Company estimates monthly operating costs of approximately $10,000.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by $5,916 (2.4%) year-over-year, primarily driven by a $31,750 lease abandonment expense related to the South Okie Prospect, partially offset by a $7,314 decrease in production and operating expenses.
- Debt Elimination: Total current liabilities decreased significantly from $111,487 to $10,135. This was due to the conversion of $302,167 in related-party debt (notes payable and accrued interest) into 6,000,250 shares of common stock on December 11, 2012.
- Asset Base: Total assets remained relatively flat, with a slight decrease of $2,533, reflecting depreciation and the lack of new capital asset additions.
Outlook, Risks, and Management Commentary
- Going Concern: The independent auditor has issued a modified opinion expressing substantial doubt about the Company's ability to continue as a going concern. Continued operations depend on securing additional financing or a merger.
- Exploration Status:
- Gabbs Valley: Two test wells were drilled. The 2010 well recovered small amounts of oil but was deemed non-commercial due to paraffin content and water flow. The Company plans to conduct further geological studies.
- South Okie: One lease terminated in October 2012. The Company holds approximately 110 net acres.
- Capital Needs: The Company intends to seek merger opportunities or public/private financings. Management (specifically the CEO) expects to provide financial support for several months to facilitate these efforts.
- Risks: Key risks include the inability to raise capital, volatility in oil and gas prices, drilling hazards, and the lack of a significant public trading market for its stock (traded on OTCQB).
Investor Verification Checklist
- Cash Runway: Verify if the Company has secured new financing since the filing date, as $20,766 in cash is insufficient for 12 months of operations.
- Related Party Transactions: Review the terms of the debt-to-equity conversion with the Whitehead Trust and the CEO's continued financial support obligations.
- Lease Expirations: Monitor the status of the Gabbs Valley and South Okie leases, as the Company has no producing wells to extend lease terms.
- Stock Dilution: Note the issuance of over 6 million shares in late 2012 to settle debt, which significantly increased the share count.