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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2024
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting Policies Significant Accounting Policies During the nine months ended September 30, 2024, Empire added one significant accounting policy and estimate relating to convertible debt and derivative liability. Besides this, there have been no material changes to significant accounting policies and estimates from the information provided in the Form 10-K for the year ended December 31, 2023. Convertible Debt and Derivative Liability In connection with Empire’s issuance of a Promissory Note in the first quarter of 2024, Empire bifurcated the embedded conversion option, and recorded the embedded conversion option as a long-term derivative liability in Empire’s unaudited interim condensed consolidated balance sheets in accordance with FASB ASC 815, Derivatives and Hedging. The convertible debt and the derivative liability associated with the Promissory Note were presented on the unaudited interim condensed consolidated balance sheets as the Long-Term note payable – related party and long-term derivative instruments. The convertible debt was carried at amortized cost. The derivative liability was remeasured at each reporting period using a binomial lattice model with changes in fair value recorded in the unaudited interim condensed consolidated statements of operations in other income (expense). The conversion option related to the Promissory Note was exercised in the second quarter of 2024. See Note 8 for further details. Fair Value Measurements FASB ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), defines fair value, establishes a consistent framework for measuring fair value and establishes a fair value hierarchy based on the observability of inputs used to measure fair value. The three-level fair value hierarchy for disclosure of fair value measurements defined by ASC Topic 820 is as follows: Level 1 – Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 3 – Prices or valuations that require unobservable inputs that are both significant to the fair value measurement and unobservable. Valuation under Level 3 generally involves a significant degree of judgment from management. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve a degree of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity. Empire reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels for the period ended September 30, 2024. Financial instruments and other – The fair values determined for accounts receivable, accrued expenses and other current liabilities were equivalent to the carrying value due to their short-term nature. Derivatives – Derivative financial instruments are carried at fair value and measured on a recurring basis. Empire’s commodity price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves; thus, these inputs are designated as Level 2 within the valuation hierarchy. The fair values of derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments in liability positions include measures of Empire’s nonperformance risk. These measurements were not material to the unaudited interim condensed consolidated financial statements. Assets and Liabilities Measured at Fair Value on a Recurring Basis - Empire uses a binomial lattice valuation model to value Level 3 derivative liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as Empire’s stock price, contractual terms of the Promissory Note, and unobservable inputs classified as Level 3 including risk-free rate and expected volatility. As of the conversion option exercise date of May 24, 2024, these unobservable inputs were 5.0% and 46.9%, respectively. Fair Value on a Nonrecurring Basis Empire applies the provisions of fair value measurement on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties and asset retirement obligations. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary. No triggering events that require assessment of such items were observed during the nine months ended September 30, 2024. Related Party Transactions Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. FASB ASC 850, Related Party Disclosures requires that transactions with related parties that would have influence in decision making shall be disclosed so that users of the financial statements can evaluate their significance. Related party transactions typically occur within the context of the following relationships: affiliates of the entity; entities for which investments in their equity securities is typically accounted for under the equity method by the investing entity; trusts for the benefit of employees; principal owners of the entity and members of their immediate families; management of the entity and members of their immediate families; and other parties that can significantly influence the management or operating policies of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. Concentrations of Credit Risk Empire’s accounts receivable are primarily receivables from oil and natural gas purchasers and joint interest owners. The purchasers of Empire’s oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically, Empire has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. Empire operates a substantial portion of its oil and natural gas properties. As the operator of a property, Empire makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting of amounts payable or receivable between Empire and its joint interest owners. Empire’s joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of Empire’s joint interest partners to reimburse Empire could be adversely affected. Recently Adopted Accounting Standards The FASB periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. Empire has reviewed the recently issued pronouncements and concluded that the following new accounting standards are applicable: In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this ASU affect entities that issue convertible instruments and/or contracts in an entity’s own equity. The amendments in this ASU primarily affect convertible instruments issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed. However, all entities that issue convertible instruments are affected by the amendments to the disclosure requirements of this ASU. For contracts in an entity’s own equity, the contracts primarily affected are freestanding instruments and embedded features that are accounted for as derivatives under the current guidance because of failure to meet the settlement conditions of the derivatives scope exception related to certain requirements of the settlement assessment. Also affected is the assessment of whether an embedded conversion feature in a convertible instrument qualifies for the derivatives scope exception. Additionally, the amendments in this ASU affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments in this ASU are effective for public business entities, excluding entities eligible to be smaller reporting companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Board decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. Empire has adopted this standard for the current year and does not expect it to have a material impact on our consolidated financial statements.

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