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Stock Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock Based Compensation

Note 12 – Stock Based Compensation

On April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the “2019 Stock Option Plan”). The total number of shares of common stock that may be issued pursuant to stock options under the 2019 Stock Option Plan was 2,500,000. Further, on April 3, 2019 the Company granted Mr. Pritchard and Mr. Morrisett each, options to purchase 625,000 shares of common stock of the Company at an exercise price of $1.32 per share. The options vested in three installments with

312,500 vesting immediately and 156,250 vesting each in April 2020 and April 2021. All of the options expire in April 2029. The value allocated to the vested options was the fair value determined using the Black-Scholes option valuation with the following assumptions: no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and an expected useful life of 5.375 years. The fair value of the vested options of $812,500 was recorded as compensation expense and allocated to Paid in Capital in 2019. In 2021 and 2020, the fair value of the options which vested in April of the respective year of $406,250 was recorded as compensation expense and allocated to Additional Paid in Capital. All of the options were vested as of December 31, 2021. As a result of the adoption of a 2021 plan, the Board of Directors and management have determined that there would be no further issuances from the 2019 Stock Option Plan. In April 2022, Mr. Pritchard exercised options to purchase 235,000 shares of common stock. As of December 31, 2022, there were 1,943,200 unexercised options under the Stock Option Plan.

On August 27, 2021, the Board of Directors of the Company adopted the Company’s 2021 Stock and Incentive Compensation Plan (the “2021 Incentive Plan”) which was subsequently approved by stockholders of the Company. The total number of shares of common stock that could be issued pursuant to the 2021 Incentive Plan is 750,000. Four grants were made in 2021 that amounted to 187,500 options. Two of the grants were for a cumulative amount of 62,500 options and vested immediately upon grant in November 2021. Valuation was calculated using the Black-Scholes option valuation model with the following assumptions: no dividend yield, expected annual volatility of 229%, risk free interest rate of 0.81%, and term of 3 years. The third grant was for 62,500 options and the valuation used the following inputs: no dividend yield, expected annual volatility of 277%, risk free interest rate of 0.99%, and term of 4 years. The fourth grant was for 62,500 options and inputs used to value the grant included no dividend yield, expected annual volatility of 335%, risk free interest rate of 1.16%, and a term of 5 years.

On February 28, 2022, the Board of Directors of the Company granted a combination of stock options and restricted stock units under the 2021 Incentive Plan. Stock options totaling 249,000 shares were granted to employees and members of management with three-year vesting terms and expirations of August 2025 and 2026. Stock option values were calculated using a Black-Scholes option valuation with the following assumptions: no dividend yield, expected annual volatility of 56% as calculated by utilizing the stock price from the date of the XTO acquisition through grant date, risk free interest rate of 1.62% and 1.67% for the 2025 and 2026 options, respectively, and expected useful lives of 2.75 and 3.75 years for the 2025 and 2026 options, respectively. Total fair value of the stock option grants was approximately $1.2 million. The value of these options is recognized to expense on a straight-line method from date of grant through expiration date.

On August 26, 2022, the stockholders of the Company approved the Company’s 2022 Stock and Incentive Compensation Plan (the “2022 Incentive Plan”) which reserves 750,000 shares of the Company’s common stock for issuance thereunder. As a result of such approval, no further awards will be made under the 2021 Incentive Plan. The 2022 Stock and Incentive Plan authorizes the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards (restricted stock awards, restricted stock units, performance shares and performance units are collectively referred to as restricted stock units for purposes of this footnote. At December 31, 2022, 313,220 shares of our common stock were available for future grants.

Restricted Stock Units

Each RSU represents the contingent right to receive one share of common stock. The holders of outstanding RSUs do not receive dividends or have voting rights prior to vesting and settlement. The Company determines the fair value of granted RSUs based on the market price of the common stock on the date of the grant. Compensation expense for granted RSUs is recognized on a straight-line basis over the vesting and is net of forfeitures, as incurred. Stock-based compensation is included in General and Administrative expense in the Consolidated Statements of Operations and is recorded with a corresponding increase in Additional Paid-in Capital within the Consolidated Balance Sheets.

RSUs were granted on February 28, 2022, May 22, 2022, October 11, 2022 and December 30, 2022 with 12- and 13-month service periods. Total value assigned to the RSUs based on grant date price approximated $3,151,000. For the year ended December 31, 2022, approximately $1,227,000 of compensation expense related to RSUs was recognized, leaving approximately $1,971,000 of unrecognized compensation expense which will be recognized on a straight-line basis depending on the service period of each grant.

The following summary reflects nonvested restricted stock unit activity and related information for the year ended December 31, 2022.

Weighted Average

Shares Fair Value (a)

Outstanding, December 31, 2021 — $ —

Granted 224,288 15.42

Vested — —

Outstanding, December 31, 2022 224,288 $ 15.42

(a) Shares are valued at the grant-date market price.

2022

Weighted Average grant date fair value of restricted stock units granted during the year, per share $ 15.42

Total fair value of restricted stock units vested during the year $ —

Stock Options

The following summary reflects stock option activity and related information:

Weighted Average

Options Exercise Price

Outstanding, December 31, 2020 2,500,000 $ 1.36

Granted 187,500 12.20

Expired (246,800 ) 1.36

Outstanding, December 31, 2021 2,440,700 $ 2.19

Granted 249,000 11.80

Exercised (310,000 ) 1.34

Outstanding, December 31, 2022 2,379,700 $ 3.31

The following table summarizes information about stock options outstanding as of December 31, 2022:

Range of Options Weighted Average Weighted Options Weighted

Exercise Outstanding Remaining Average Exercisable Average

Prices at 12/31/22 Contractual Life Exercise Price at 12/31/22 Exercise Price

$1.32 to $11.80 2,379,700 6.38 years $2.97 2,068,200 $1.76