Empire Petroleum Announces Results for Second Quarter 2023

Empire Petroleum (NYSE American: EP) (“Empire” or the “Company”), an oil and gas company with producing assets in New Mexico, North Dakota, Montana, Texas and Louisiana, today announced operational and financial results for the second quarter of 2023.

KEY SECOND QUARTER AND RECENT HIGHLIGHTS

• Grew average daily oil sales volumes by 6% sequentially and 4% year-over-year;
  • Produced sales volumes of 2,135 barrels of oil equivalent per day (“Boe/d”) (66% oil, 16% natural gas liquids (“NGLs”) and 18% natural gas) compared to 2,206 Boe/d (61% oil, 20% NGLs, and 19% natural gas) for the first quarter of 2023. Sales volumes for the second quarter of 2022 were 2,158 Boe/d (63% oil, 19% NGLs, and 18% natural gas);
• Reported revenue of $9.7 million, a net loss of $2.5 million, or $0.11 per diluted share, and an Adjusted Net Loss¹ of $2.4 million, or $0.11 per diluted share;
• Generated Adjusted EBITDA¹ of $0.2 million;
• Ended the second quarter of 2023 with $1.6 million of liquidity;
• Continued its targeted development program that began in 2022, with capital spending of $3.1 million for the first half of 2023 reflecting recompletion and other well activities across Empire’s portfolio of assets and sidetrack drilling projects in North Dakota; and
• Recently announced that on August 9, 2023, the Company and an indirect wholly-owned subsidiary of Energy Evolution Master Fund, Ltd. – Empire’s largest shareholder – had collectively acquired additional working interests in the Company’s three properties located in Lea County, New Mexico, including Eunice Monument South Unit A, Eunice Monument South Unit B, and Arrowhead Grayburg Unit.

1. Adjusted Net Income (Loss), EBITDA and Adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Information” section later in this release for more information, including reconciliations to the most comparable GAAP measure.

MANAGEMENT COMMENTARY

Mike Morrisett, President and Chief Executive Officer of Empire, commented, “While commodity prices were depressed in the second quarter, we have been pleased to see a material improvement in pricing during the third quarter. Our second quarter oil production began to demonstrate the effects of our development campaign that we began in the latter part of 2022 on our North Dakota assets and these efforts are expanding in the second half of 2023. We are leveraging the lessons learned as we accelerate our development activities across our asset base to drive a meaningful increase in production levels and cash flow for the near and long-term benefit of our shareholders.”

Mr. Morrisett concluded, “Our ongoing success is a direct result of the efforts we have undertaken over the past year to expand our knowledge of the assets we acquired over the past three years. Central to this has been the hiring of key professionals that provide best-in-class technical and management experience. The more we learn about the assets in our portfolio, the more we like them. We look forward to keeping the investment community apprised of our progress as we kick off the most significant development program in the history of the Company.”

FINANCIAL AND OPERATIONAL RESULTS FOR SECOND QUARTER 2023

Net sales were 2,135 Boe/d, including 1,411 barrels of oil per day; 337 barrels of NGLs per day, and 2,322 thousand cubic feet per day (“Mcf/d”), or 387 Boe/d, of natural gas. This is compared to net sales for the first quarter of 2023 of 2,206 Boe/d, including 1,336 barrels of oil per day; 442 barrels of NGLs per day, and 2,569 thousand cubic feet per day (“Mcf/d”), or 428 Boe/d, of natural gas. Contributing to the sequential increase in oil sales volumes was increased production from Empire’s assets in North Dakota associated with the Company’s targeted capital development program that began in the second half of 2022.

Empire reported $9.7 million of revenue versus $10.1 million for the first quarter of 2023. Offsetting the increase in oil sales volumes was lower NGLs and natural gas sales volumes and a slight decrease in overall realized pricing.

Lease operating expenses were $7.1 million ($36.54 per Boe) compared to $6.5 million ($32.84 per Boe) for the first quarter of 2023. The second quarter included $0.6 million of plug and abandonment expense.

Production and ad valorem taxes were $0.7 million, which was a slight decrease from $0.8 million for the first quarter of 2023, and were 7.4% and 7.5% of total product revenue, respectively, for the second and first quarters of 2023.

General and administrative (“G&A”) expense, excluding non-cash share-based compensation expense, was $1.9 million ($9.75 per Boe) versus $3.0 million ($15.23 per Boe) for the first quarter of 2023. The first quarter included $0.4 million, or $1.89 per Boe, of cash severance costs associated with departure of the Company’s previous Chief Executive Officer.

Empire recorded a net loss of $2.5 million, or $0.11 per diluted share, which was flat with the first quarter of 2023. The Company posted an Adjusted Net Loss for the second quarter of 2023 of $2.4 million, or $0.11 per diluted share, versus an Adjusted Net Loss of $1.9 million, or $0.08 per diluted share, in the first quarter of 2023.

Adjusted EBITDA was $0.2 million, which was flat with the first quarter of 2023.

CAPITAL SPENDING, BALANCE SHEET & LIQUIDITY

For the three months and six months ended June 30, 2023, the Company invested approximately $0.9 million and $3.1 million, respectively, in capital expenditures primarily related to recompletion and other activities in multiple states as Empire seeks to bring production online from existing wells and new production online from sidetrack drilling in North Dakota.

Total liquidity at the end of the second quarter of 2023 was $1.6 million, including $1.3 million of cash and $0.3 million of availability on the Company’s credit facility. Empire remains squarely focused on continuing to execute on its strategy to remain financially conservative and target opportunities that provide long-term value for the Company’s shareholders.

ABOUT EMPIRE PETROLEUM

Empire Petroleum Corporation is a publicly traded, Tulsa-based oil and gas company with current producing assets in Texas, Louisiana, North Dakota, Montana, and New Mexico. Management is focused on organic growth and targeted acquisitions of proved developed assets with synergies with its existing portfolio of wells. More information about Empire can be found at www.empirepetroleumcorp.com.

SAFE HARBOR STATEMENT

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve a wide variety of risks and uncertainties, and include, without limitations, statements with respect to the Company’s estimates, strategy and prospects. Such statements are subject to certain risks and uncertainties which are disclosed in the Company’s reports filed with the SEC, including its Form 10-K for the fiscal year ended December 31, 2022, and its other filings with the SEC. Readers and investors are cautioned that the Company’s actual results may differ materially from those described in the forward-looking statements due to a number of factors, including, but not limited to, the Company’s ability to acquire productive oil and/or gas properties or to successfully drill and complete oil and/or gas wells on such properties, general economic conditions both domestically and abroad, and other risks and uncertainties related to the conduct of business by the Company. Other than as required by applicable securities laws, the Company does not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations, or otherwise.

Empire Petroleum Corporation

Non-GAAP Information

Certain financial information included in Empire’s financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures include “Adjusted Net Income (Loss)”, “EBITDA” and “Adjusted EBITDA”. These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be reported by other companies. Adjusted Net Income (Loss) is presented because the timing and amount of these items cannot be reasonably estimated and affect the comparability of operating results from period to period, and current periods to prior periods.

The Company defines Adjusted EBITDA as net income (loss) plus net interest expense, depreciation, depletion and amortization (“DD&A”), accretion, amortization of right of use assets and other non-cash items. Company management believes this presentation is relevant and useful because it helps investors understand Empire’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. In addition, Adjusted EBITDA does not represent funds available for discretionary use.

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