2020 Acquisitions

Pardus Acquisition

On April 6, 2020 the Company, through its wholly owned subsidiary, Empire Texas, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Pardus Oil & Gas, LLC and Pardus Oil & Gas Operating GP, LLC (collectively “the Seller”) to purchase certain oil and natural gas properties in Texas, and all general and limited partner interest in Pardus Oil & Gas Operating, LP. The purchase price, as amended, included the assumption of certain obligations totaling $1,584,042 and a cash payment of $40,000 for a total purchase price of $1,624,042. An asset retirement obligation of $9,508,484 was recorded in conjunction with the purchase. The transaction closed on April 7, 2020 and was treated as an asset acquisition.

Ovintiv Acquisition

On March 3, 2020 the Company, through its wholly owned subsidiary, Empire North Dakota, LLC, entered into a Purchase and Sale Agreement (“the Agreement”) with Ovintiv USA, Inc. and several related companies to purchase certain oil and natural gas properties in Montana and North Dakota. The purchase price was $8,500,000, subject to adjustments with an effective date of January 1, 2020 and a closing date of April 30, 2020.

The Company made an $850,000 deposit relating to the purchase. Due to the COVID pandemic and governmental state of emergency orders related thereto, the Company was unable to meet with and obtain financing to complete the purchase from its lenders. The Agreement has been terminated and the parties have agreed to settle with Empire receiving a $50,000 return of its deposit. The forfeited deposit is included in general and administrative expenses in the financial statements.

2019 Acquisitions

Warhorse Acquisition

On June 10, 2019, the Company received a sheriff's deed dated as of May 29, 2019 (the "Sheriff's Deed") pertaining to two wells in St. Landry Parish purchased from Business First Bancshares, Inc. d/b/a Business First Bank ("Business First").

Pursuant to the Sheriff's Deed, the Company acquired certain oil and natural gas properties located in St. Landry Parish, Louisiana, including operated working interest in two producing wells. The Company purchased Business First's position as the superior lienholder and seizing creditor of such oil and natural gas properties, which were owned by Warhorse Oil & Gas, LLC, for $450,000 plus $16,993 sheriff fees. The payment was paid from loan proceeds.

The Company treated the acquisition as an asset purchase. An amount equal to $73,968 was allocated to lease and well equipment and $378,110 was allocated to producing properties. An asset retirement obligation of $19,732 was recorded in conjunction with the purchase.

EnergyQuest Acquisition

On March 28, 2019, the Company purchased oil producing properties from EnergyQuest II, LLC ("EnergyQuest") for a purchase price of $5,600,000. The effective date of the transaction was January 1, 2019. After certain adjustments related to the effective date, the total proceeds paid to EnergyQuest were $5,646,126. Such proceeds were paid from borrowing on notes payable and sales of unregistered securities of the Company.

The following table sets forth the Company’s purchase price allocations to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date, with any excess of the estimated fair value of the identifiable net assets acquired over the purchase price recorded as a reduction in value of the oil and natural gas properties.

	EnergyQuest		Pardus
Fair Value of Assets Acquired
Accounts receivable	$	1,308,748	$	100,208
Inventory of oil in tanks		438,320		147,297
Deposits		—		378,000
Equipment & gathering lines		—		109,200
Oil and natural gas properties		10,878,430		10,397,821
Total Assets Acquired	$	12,625,498	$	11,132,526

Fair Value of liabilities Assumed
Accounts payable – trade		1,861,433		20,455
Notes payable – current		—		378,000
Royalty suspense		—		1,185,587
Asset retirement obligations		5,117,939		9,508,484
Total Liabilities Assumed	$	6,979,372	$	11,092,526

Purchase Price	$	5,646,126	$	40,000

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

Oil and natural gas properties

For the EnergyQuest acquisition, 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.

For the Pardus acquisition, the value of oil and gas properties was based on an allocation of the purchase price which included assignment of values to the other identifiable assets acquired and liabilities assumed.

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.

Inventory acquired as a part of the acquisition was based on oil in tanks at the date of acquisition multiplied by the day’s spot price.

Deposits were valued based on the actual amount paid by the seller and held with third parties.

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

For 2020, the financial statements include Pardus from the date of acquisition and EnergyQuest for the full year.