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Fair Value Measurements
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 15 – Fair Value Measurements

 

The following table provides the carrying value and fair value measurement information for certain financial assets and liabilities. The carrying values of cash, accounts receivable, inventory, accounts payable, accrued expenses, lease liabilities, notes payables and equipment and vehicle notes included in the accompanying unaudited interim consolidated balance sheets approximated fair value at June 30, 2025, and December 31, 2024, as applicable, and generally represent Level 2 fair values due to their short-term nature. Therefore, such financial assets and liabilities are not presented in the following table:

 

                                 
             Fair Value Measurements Using: 
   Carrying   Total Fair   Level 1   Level 2   Level 3 
   Amount   Value   Inputs   Inputs   Inputs 
                          
June 30, 2025 liabilities                         
Debt - Promissory Note, Related Party  $(2,000)  $(1,993)  $—   $(1,993)  $— 
Debt - Credit Facility   (14,089)   (14,089)   —    (14,089)   — 
                          
December 31, 2024 liabilities                         
Debt - Promissory Note, Related Party  $—   $—   $—   $—   $— 
Debt - Credit Facility   (11,089)   (11,089)   —    (11,089)   — 

 

 

The following methods and assumptions were used to estimate the fair values in the table above and other fair value measurements.

 

Level 2

 

Derivatives - Derivative financial instruments are carried at fair value and measured on a recurring basis. The Company’s commodity price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves.

 

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 the Company’s nonperformance risk.

 

Debt – The fair value of the related party promissory note was determined using a discounted cash flow model. The fair value of our Credit Facility variable rate debt approximates the carrying value as the underlying prime rate changes based on prevailing market rates.

 

Level 3

 

Impairment of oil and natural gas properties – The fair value of proved and unproved 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 and unproved 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. For significant acquisitions, management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

 

Asset Retirement Obligation – The fair value of AROs is included in proved oil and natural gas properties with a corresponding liability. 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 for impairments and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

 

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 six months ended June 30, 2025 and 2024.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis – In the determination of the fair value of the February Note discussed further in Note 8 including the embedded conversion feature, Empire used 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 February Note, and unobservable inputs classified as Level 3 including risk-free rate and expected volatility. Due to the subjective nature of these inputs, the fair value measurement could differ materially under alternative assumptions. As of the conversion option exercise date of May 24, 2024, these unobservable inputs were 5.0% and 46.9%, respectively.