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Acquisitions of oil and gas properties

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

5. Acquisitions of oil and gas properties

Cardinal Acquisition

On August 28, 2018, the Company purchased oil producing properties from Cardinal Exploration and Production Company ("Cardinal") for a purchase price of $323,000. The effective date of the transaction was June 1, 2018. After certain adjustments related to the effective date, the total proceeds paid to Cardinal were $293,965. Such proceeds were paid from sales of unregistered securities of the Company.

The oil and gas properties purchased from Cardinal include four active operated wells in Louisiana, including one saltwater disposal well, currently producing approximately 16 barrels of oil equivalent (BOE) per day, and Empire's working interests in the wells are 100%.

Exodus Acquisition

On September 20, 2018, the Company purchased oil and natural gas properties from Exodus Energy, Inc. ("Exodus") for a purchase price of $969,042. Post close adjustments reduced the purchase price to $959,338. The effective date of the transaction was August 1, 2018. Such proceeds were paid from loan proceeds and sales of unregistered securities.

The oil and gas properties include 1,500 gross developed and undeveloped acres and eight wells currently producing approximately 135 barrels of oil equivalent (BOE) per day. The Company's working interests in the wells range from 50% to 90%.

Riviera Upstream Acquisition

On October 29, 2018, the Company purchased oil and natural gas properties from Riviera Upstream, LLC formerly known as Linn Energy Holdings, LLC ("Riviera") for a purchase price of $205,000. Post close adjustments reduced the total purchase price to $163,273. The effective date of the transaction was October 1, 2018.

The oil and gas properties include 1,200 gross developed and undeveloped acres and six wells currently producing approximately 30 barrels of oil equivalent (BOE) per day. The Company's working interests in the wells ranges from 0% to 50%.

The following table sets forth the Company's preliminary purchase price allocations:

		Cardinal				Exodus				Riviera
Fair Value of Assets Acquired
Accounts receivable			57,061				144,038				50,335
Oil and natural gas properties	(a)		377,747				1,059,065				208,254
Total Assets Acquired		$	434,808				1,203,103				258,589

Fair Value of liabilities Assumed
Accounts payable – trade			28,026				134,335				8,607
Asset retirement obligations			83,782				99,421				44,982
Total Liabilities Assumed		$	111,808				234,061				53,589

(a)	The Cardinal acquisition was of oil producing properties only.

The fair values of assets acquired and liabilities assumed were based on the following key inputs:

Oil and natural gas properties

The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; 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. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

The fair value of asset retirement obligations are included in proved oil and natural gas properties with a corresponding liability in the table above. 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 and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

Financial instruments and other

The fair values determined for accounts receivable and accounts payable – trade were equivalent to the carrying value due to their short-term nature.

Accounts payable - trade includes liabilities primarily related to well activity prior to close.

The unaudited financial information in the table below summarizes the combined results of operations of the Company, the Exodus assets acquired, the Cardinal assets acquired, and the Riviera assets acquired for the years ended December 31, 2018 and 2017 on a pro forma basis, as though the companies had been combined as of January 1, 2017. The unaudited pro forma earnings for the years ending December 31, 2018 and 2017 were adjusted to include $19,300 and $34,803 of depreciation, depletion, and amortization, respectively. Incremental interest expense of $29,498 and $58,997 was included for the years ended December 31, 2018 and 2017, respectively, as if the Senior Revolver Loan Agreement used to help fund the acquisition had been entered into on January 1, 2017. Earnings per share were adjusted to include the additional 1,978,810 shares of the Company's common stock issued to help fund the acquisitions as if those shares had been issued on January 1, 2017. The unaudited pro forma information is provided for informational purposes only and does not purport to be indicative of the Company's combined results of operations which would actually have been obtained had the acquisitions taken place on January 1, 2017, nor should it be taken as indicative of the Company's future consolidated results of operations.

		For the year ended December 31,
		2018				2017

Oil and gas sales		$	952,121			$	1,059,992
Net loss			(899,100	)			(789,852	)
Earnings per share, basic and diluted		$	(0.06	)		$	(0.05	)