EMPIRE PETROLEUM CORP Debt Disclosure

Note 7 – Debt Including Debt with Related Parties

 

The following table represents the Company’s outstanding debt:

 

		As of December 31,
		2024				2023
Equity Bank Credit Facility		$	11,088,647			$	4,492,484
Note Payable – Related Party			—				1,060,004
Equipment and vehicle notes, 0.00% to 9.59% interest rates, due in 2025 to 2029 with monthly payments ranging from $900 to $1,400 per month (1)			247,032				148,516
Total Debt			11,335,679				5,701,004
Less: Current Maturities			(69,552	)			(44,225	)
Less: Note Payable – Related Party			—				(1,060,004	)
Long-Term Debt		$	11,266,127			$	4,596,775

 

(1)	Weighted-average interest rate of 8.32%

 

 

On July 7, 2021, the Company entered into the Fourth Amendment to its Senior Revolver Loan Agreement with CrossFirst Bank ("CrossFirst”) as further amended by Letter Agreements in conjunction with redetermination dates (the “Amended Agreement”). The maximum amount that could be advanced under the Amended Agreement was $20.0 million and the commitment amount following an August 9, 2023, amendment agreement was approximately $5.2 million. The Amended Agreement was subsequently retired with proceeds from the new revolver loan agreement discussed below.

 

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 $10.0 million; (b) the maximum revolver commitment amount is $15.0 million; (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 (as defined in the Credit Facility), calculated quarterly and annually based on a trailing twelve-month basis, of no more than 3.50 to 1.00. At December 31, 2024, the Borrowers were in compliance with all required covenants under the Credit Facility.

 

 

On November 18, 2024, the Company entered into the First Amendment. Pursuant to the First Amendment (a) the maximum revolver commitment amount is $20.0 million; and (b) commencing on December 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is reduced by $250,000.

 

On September 19, 2023, each of Phil Mulacek, a member of the Company’s Board of Directors, and Energy Evolution made a bridge loan to Empire North Dakota in the amount of $5.0 million (collectively, the "Bridge Loans”). These Bridge Loans were subsequently converted to our common shares through entering into subsequent Securities Purchase Agreements. Mr. Mulacek and Energy Evolution are each a related party of the Company. See Note 14 for additional information regarding the Securities Purchase Agreements and the subsequent conversion to our common shares.

 

Promissory Note - Related Party

 

On February 16, 2024, Empire issued a promissory note in the aggregate principal amount of $5.0 million (the "Note”) to Energy Evolution. Energy Evolution advanced Empire $5.0 million under the Note. The proceeds of the Note were used by Empire 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 Empire 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 Empire 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 Empire, 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 Empire 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 Empire 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 Empire in the manner set forth in the Note (where the Interest Payment Date is the date of prepayment).

 

Empire 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 approximately $1.3 million as of March 31, 2024, and was determined using a binomial lattice model using certain assumptions and inputs discussed in Note 17. Accordingly, Empire recognized a gain on the fair value adjustment of the derivative liability in the amount of approximately $0.7 million in other income (expense) in the consolidated statements of operations for the year ended December 31, 2024. The conversion option was exercised by Energy Evolution on May 24, 2024, in exchange for 800,000 shares of common stock of the Company under the terms of the Note and the fair value of the derivative was revalued as of that date resulting in a loss of $1.7 million in 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.

Note Payable - Related Party

 

In August 2020, Empire, through its wholly-owned subsidiary, Empire Texas, entered into a 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 performed recompletion or workover on specified mutually agreed upon wells owned by Empire Texas. Concurrent with the JDA with PIE, Empire entered into a term loan agreement dated August 1, 2020, whereby PIE will loan up to $2.0 million, 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, Empire assigned 85% working and revenue interest to PIE in the designated wells which will be applied to repayment of the loan.

 

On July 31, 2024, PIE, Empire Texas, and Empire entered into a note repayment and loan termination agreement providing for the payment in full of the remaining outstanding amount of the approximate $1.1 million PIE loan and extending the loan maturity date to December 31, 2024, unless terminated earlier by PIE. As payment in full, Empire issued PIE 205,427 shares of common stock of Empire following the approval of a supplemental listing application by the NYSE American stock exchange in the third quarter of 2024.