Empire Petroleum (EP) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the period ended June 30, 2020 Financial Statements This section presents the unaudited consolidated financial statements for the period ended June 30, 2020, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows Consolidated Balance Sheets As of June 30, 2020, total assets more than doubled to $23.1 million from $11.0 million at year-end 2019, resulting in an increased stockholders' deficit of $5.8 million Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $23,123,289 | $11,014,580 | | Total Current Assets | $2,715,364 | $1,588,660 | | Total Property and Equipment, net | $19,795,114 | $9,307,743 | | Total Liabilities | $28,938,364 | $15,953,235 | | Total Current Liabilities | $12,127,554 | $2,238,066 | | Asset Retirement Obligations | $15,652,761 | $5,788,280 | | Total Stockholders' Deficit | $(5,815,075) | $(4,938,655) | Consolidated Statements of Operations For the three months ended June 30, 2020, net loss increased to $3.0 million, while for the six-month period, it narrowed significantly to $1.4 million due to derivative gains Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Oil and Gas Sales | $994,529 | $1,996,758 | $2,308,929 | $2,320,968 | | Net (Loss)/Gain on Derivatives | $(402,374) | $500,728 | $2,106,671 | $432,369 | | Total Revenue | $592,155 | $2,497,486 | $4,415,600 | $2,753,337 | | Impairment of Properties | $— | $— | $800,452 | $— | | Net Loss | $(2,973,185) | $(2,006,060) | $(1,385,170) | $(2,593,562) | | Net Loss per Share | $(0.14) | $(0.10) | $(0.07) | $(0.14) | Consolidated Statements of Cash Flows For the six months ended June 30, 2020, net cash used in operating activities was $294,287, with financing activities providing $775,700, resulting in $285,813 cash at period end Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net Cash (Used in)/Provided by Operating Activities | $(294,287) | $54,611 | | Net Cash Used in Investing Activities | $(195,600) | $(5,720,986) | | Net Cash Provided by Financing Activities | $775,700 | $5,581,744 | | Net Change in Cash | $285,813 | $(84,631) | | Cash - End of Period | $285,813 | $— | Notes to Consolidated Financial Statements The notes detail significant accounting policies, recent acquisitions, and key financial items, highlighting a going concern risk and an $800,452 impairment charge - The company's continuation as a going concern is dependent on its ability to achieve profitable operations or secure additional financing, and management believes the going concern assumption is appropriate[27] - Due to a significant decline in oil prices, the company recorded an impairment expense of $800,452 on its oil and natural gas properties for the six months ended June 30, 2020[28][52] - The company acquired oil and gas properties from Pardus Oil & Gas, LLC in Texas on April 6, 2020, and terminated a purchase agreement with Ovintiv USA, Inc., recording a $725,000 allowance for the potential loss of its deposit[57][58] - As of June 30, 2020, the company was not in compliance with the funded debt to EBITDAX covenant of its Senior Revolver Loan Agreement with CrossFirst Bank[82] - Subsequent to the quarter's end, on August 6, 2020, the company entered into a joint development agreement and a securities purchase agreement with Petroleum & Independent Exploration, LLC (PIE)[92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses operational results, financial condition, and liquidity, explaining drivers behind changes in revenue, expenses, and net loss, and outlining risks from commodity price volatility and COVID-19 Results of Operations For Q2 2020, oil and gas sales revenue fell to $0.99 million, while H1 2020 net loss improved to $1.4 million due to a $2.1 million gain on derivatives Q2 2020 vs Q2 2019 Results | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Oil & Gas Sales | $994,529 | $1,996,758 | | Net (Loss)/Gain on Derivatives | $(402,374) | $500,728 | | Net Loss | $(2,973,185) | $(2,006,060) | H1 2020 vs H1 2019 Results | Metric | H1 2020 | H1 2019 | | :--- | :--- | :--- | | Oil & Gas Sales | $2,308,929 | $2,320,968 | | Net Gain on Derivatives | $2,106,671 | $432,369 | | Impairment Expense | $800,452 | $0 | | Net Loss | $(1,385,170) | $(2,593,562) | Production and Pricing Data (H1 2020 vs H1 2019) | Metric | H1 2020 | H1 2019 | | :--- | :--- | :--- | | Total Production (Boe) | 83,704 | 46,381 | | Avg. Price per Boe | $39.72 | $51.66 | Liquidity and Capital Resources As of June 30, 2020, the company had $285,813 in cash and a $9.4 million working capital deficit, facing challenges from volatile oil prices and COVID-19 - The company had $285,813 in cash as of June 30, 2020, and expects to raise additional capital for future investments and working capital[110] - The COVID-19 pandemic has caused significant oil price volatility. While derivative positions have helped mitigate the impact for 2020 production, future uncertainty remains[112] - The company warns that reduced demand and potential storage capacity issues due to COVID-19 could force production shut-ins, which would materially and adversely affect operating results and debt covenant compliance[115] Quantitative and Qualitative Disclosures About Market Risk The company states that this item is not applicable - The company has indicated that this section is not applicable[121] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - The company's President (and principal financial officer) concluded that disclosure controls and procedures were effective as of the end of the period covered by this report[122] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, other information, and exhibits Legal Proceedings The company reported no legal proceedings during the period - The company reports no legal proceedings[125] Risk Factors The company states that this item is not applicable, referring to its Form 10-K for material risks - The company has indicated that this section is not applicable[126] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - The company reports none[127] Defaults Upon Senior Securities The company reported no defaults upon senior securities, despite a disclosed non-compliance with a debt covenant in the financial statement notes - The company reports no defaults upon senior securities[128] - Contradicting the 'None' statement in this section, Note 9 of the financial statements indicates the company was not in compliance with the funded debt to EBITDAX covenant of its Senior Revolver Loan Agreement as of June 30, 2020[82] Mine Safety Disclosures The company states that this item is not applicable - The company has indicated that this section is not applicable[129] Other Information The company reported no other information - The company reports none[130] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and President/CFO and financial statements in XBRL format - Lists certifications from the CEO and President/CFO pursuant to Sarbanes-Oxley Sections 302 and 906[131][132][134] - Includes financial statements in XBRL format[133]