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Debt Including Debt with Related Parties | 6 Months Ended
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Jun. 30, 2024
Debt Disclosure [Abstract] |
Debt Including Debt with Related Parties | Note 8 – Debt Including Debt with Related Parties The following table represents the Company’s outstanding debt as of June 30, 2024 and December 31, 2023:
|  | As of June 30, 2024 |  |  | As of December 31, 2023 |
Equity Bank Credit Facility |  | $ | 8,442,484 |  |  | $ | 4,492,484 |
Note Payable – Related Party |  |  | 1,060,004 |  |  |  | 1,060,004 |
Equipment and vehicle notes, 0.00% to 9.00% interest rates, due in 2025 to 2028 with monthly payments ranging from $900 to $1,400 per month |  |  | 126,632 |  |  |  | 148,516 |
Note Payable to insurance provider, bears 7.29% interest, matures January 2025, monthly payments of principal and interest of $51,067 |  |  | 294,465 |  |  |  | — |
Total Debt |  |  | 9,923,585 |  |  |  | 5,701,004 |
Less: Current Maturities |  |  | (339,825 | ) |  |  | (44,225 | )
Less: Note Payable – Related Party |  |  | (1,060,004 | ) |  |  | (1,060,004 | )
Long-Term debt |  | $ | 8,523,756 |  |  | $ | 4,596,775 |
On December 29, 2023, Empire North Dakota and Empire NDA ("Borrowers”), entered into a Revolver Loan Agreement with Equity Bank (the "Credit Facility”). Pursuant to the Credit Facility (a) the initial revolver commitment amount is $10,000,000; (b) the maximum revolver commitment amount is $15,000,000; (c) commencing on January 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is reduced by $150,000; (d) commencing on March 31, 2024, there are scheduled semiannual collateral borrowing base redeterminations each year on March 31 and September 30; (e) the final maturity date is December 29, 2026; (f) outstanding borrowings bear interest at a rate equal to the prime rate of interest plus 1.50%, and in no event lower than 8.50%; (g) a quarterly commitment fee is based on the unused portion of the commitments; and (h) Borrowers have the right to prepay loans under the Credit Facility at any time without a prepayment penalty. The Credit Facility is guaranteed by the Company. Borrowers entered into a security agreement, pursuant to which the obligations under the Credit Facility are secured by liens on substantially all of the assets of Borrowers. Furthermore, the obligations under the Credit Facility are secured by a continuing, first priority mortgage lien, pledge of and security interest in not less than 80% of Borrowers’ producing oil, gas and other leasehold and mineral interests, including without limitation, those situated in the States of North Dakota and Montana. The Credit Facility requires Borrowers to, commencing as of the fiscal quarter ended December 31, 2023, maintain (a) a current ratio of 1.0 to 1.0 or more and (b) a ratio of funded debt to EBITDAX, calculated quarterly and annually based on a trailing twelve-month basis, of no more than 3.50 to 1.00. The Company was not in compliance with the current ratio covenant as of June 30, 2024, however the Company received a compliance waiver from the lender for June 30, 2024. Promissory Note – Related Party On February 16, 2024, the Company issued a Promissory Note in the aggregate principal amount of $5,000,000 (the "Note”) to Energy Evolution. Energy Evolution advanced the Company $5,000,000 under the Note. The proceeds of the Note were used by the Company to fund, in part, its ongoing oil and gas drilling program and for working capital purposes. The Note matures on February 15, 2026 (the "Maturity Date”) and accrues interest at the rate of 7% per annum. After the Maturity Date, any principal balance of the Note remaining unpaid accrues interest at the rate of 9% per annum. At the option of Energy Evolution, interest payments will be paid either in cash or in shares of common stock of the Company on each of the following dates (or if any such date is not a business day, the next following business day) (each an "Interest Payment Date”), except upon the occurrence of an Event of Default, in which case interest will accrue and be paid in cash on demand: (i) March 31, 2024; (ii) June 30, 2024; (iii) September 30, 2024; (iv) December 31, 2024; (v) March 31, 2025; (vi) June 30, 2025; (vii) September 30, 2025; (viii) December 31, 2025; and (ix) the Maturity Date. All or any portion of the outstanding principal amount of the Note may be converted into shares of common stock of the Company at a conversion price of $6.25 per share (the "Conversion Price”), at the option of Energy Evolution, at any time and from time to time. If the full principal amount of the Note is drawn and converted into shares of common stock of the Company, 800,000 shares would be issued (without giving effect to any interest that may be converted). Accrued interest on the principal amount converted will be due on the applicable date of conversion in cash or, at the option of Energy Evolution, by issuance of shares of common stock of the Company in the manner set forth in the Note (where the date of conversion is the relevant Interest Payment Date”). The Conversion Price is subject to customary adjustments. The Note may be prepaid at any time or from time to time without the consent of Energy Evolution and without penalty or premium, provided that the Company provides Energy Evolution with at least five business days prior written notice, each principal payment is made in cash and all accrued interest is paid in cash, or at the option of Energy Evolution, the accrued interest may be paid by issuance of shares of common stock of the Company in the manner set forth in the Note (where the Interest Payment Date is the date of prepayment). The Company determined that an embedded conversion feature included in the Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $1,292,000 as of March 31, 2024 and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 2. Accordingly, the Company recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $738,000 in Other Income (Expense) in the Condensed Consolidated Statements of Operations for the quarter ended March 31, 2024. The conversion option was exercised by Energy Evolution on May 24, 2024, and the fair value of the derivative was revalued as of that date resulting in a loss of $1,736,000 in the second quarter of 2024. All of the other embedded features of the Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability. On May 24, 2024, Energy Evolution elected to convert the Note to shares of common stock of the Company and received 800,000 shares under the terms of the Note. Note Payable – Related Party In August 2020, the Company, through its wholly owned subsidiary, Empire Texas, entered into a joint development agreement (the "JDA”) with Petroleum & Independent Exploration, LLC and related entities ("PIE”), a related party (see Note 14), dated August 1, 2020. Under the terms of the JDA, PIE will perform recompletion or workover on specified mutually agreed upon wells ("Workover Wells”) owned by Empire Texas. Concurrent with the JDA with PIE, the Company entered into a term loan agreement dated August 1, 2020, whereby PIE will loan up to $2,000,000, at an interest rate of 6% per annum, maturing August 6, 2024 unless terminated earlier by PIE. The loan proceeds were used for recompletion or workover of certain designated wells. In addition, the Company assigned 85% working and revenue interest to PIE in the designated wells which will be applied to repayment of the loan. As of June 30, 2024, $1,060,004 has been advanced from the PIE loan. On July 31, 2024, PIE, Empire Texas, and the Company entered into a note repayment and loan termination agreement providing for the payment in full of the remaining outstanding amount of the $1,060,004 PIE loan and extending the loan maturity date to December 31, 2024 unless terminated earlier by PIE. As payment in full, the Company will issue PIE 205,427 shares of common stock of the Company following the approval of a supplemental listing application by the NYSE American stock exchange.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 470 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481544/470-10-50-6 Reference 2: 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