8-K: Empire Petroleum Announces Q1 2024 Results and North Dakota Drilling Update

Empire Petroleum reported its Q1 2024 financial results, highlighted by increased oil sales volumes and progress in its North Dakota drilling program, while also completing a $20.66M rights offering.

Summary

• Empire Petroleum reported a net sales volume of 2,207 barrels of oil equivalent per day (Boe/d) for the first quarter of 2024, with 65% oil, 17% natural gas liquids (NGLs), and 18% natural gas.
• Average daily oil sales volumes increased by 11% sequentially and 8% year-over-year.
• The company completed a $20.66 million rights offering at $5.00 per share to fund drilling, seismic imaging, and operations.
• A 3-D and 2-D seismic survey in North Dakota was completed in May 2024, with data processing expected by the end of Q2 2024.
• Empire Petroleum reported a total revenue of $9.4 million, a net loss of $4.0 million, or $0.15 per share, and an adjusted net loss of $3.9 million, or $0.15 per share for Q1 2024.
• Adjusted EBITDA for Q1 2024 was a loss of $0.7 million.
• The company is focusing on completing its North Dakota development program in 2024 and exploring growth opportunities in New Mexico's Permian Basin in 2025.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with positive operational progress in North Dakota and a successful capital raise, but it is offset by a net loss and negative EBITDA. The sentiment is neutral to slightly negative due to the financial losses.

Positives

• Oil sales volumes increased by 11% sequentially and 8% year-over-year.
• The company successfully completed a $20.66 million rights offering.
• The 3-D and 2-D seismic survey in North Dakota was completed on schedule.
• Drill core data has confirmed new zones of potential development in North Dakota.
• The company has achieved significant per-well cost reductions in North Dakota compared to initial expectations.
• The company is optimizing waterflood units in New Mexico to enhance recovery efficiency.
• The company has identified high potential recompletion opportunities in outlying fields in New Mexico.

Negatives

• The company reported a net loss of $4.0 million, or $0.15 per share, for Q1 2024.
• Adjusted EBITDA for Q1 2024 was a loss of $0.7 million.
• Q1-24 total revenue decreased to $9.4 million from $10.1 million in Q1-23.
• Lease operating expenses increased to $7.4 million in Q1-24 from $6.5 million in Q1-23.
• Depreciation, Depletion, Amortization and Accretion (DD&A) increased to $1.98 million in Q1-24 from $1.02 million in Q1-23.
• The company experienced a $0.9 million net loss on derivatives in Q1-24 compared to a $0.07 million loss in Q1-23.

Risks

• The company's ability to achieve production growth targets in North Dakota and New Mexico is subject to operational and technical risks.
• The company's financial performance is sensitive to fluctuations in oil and gas prices.
• The company's ongoing legal and regulatory actions against third parties could result in unexpected costs or delays.
• The company's reliance on a credit facility and its ability to secure additional financing could impact its operations.
• The company's forward-looking statements are subject to various risks and uncertainties, including the ability to acquire productive properties and successfully drill and complete wells.

Future Outlook

Empire Petroleum expects its North Dakota development efforts to drive production improvements and return operations to positive cash flow, supporting New Mexico exploration and development in late 2024 and beyond. The company is also focusing on identifying uplift opportunities in its New Mexico waterflood units for 2025.

Management Comments

• Phil Mulacek, Chairman, stated that recent drilling and data from the North Dakota field affirm confidence in the opportunity to drive meaningful production improvements.
• Phil Mulacek also noted excellent well economics and significant per-well cost reductions in North Dakota.
• Mike Morrisett, President and CEO, mentioned that the company has a clear, focused strategy to build value from its portfolio.
• Mike Morrisett added that the principal focus for the balance of 2024 is to complete the North Dakota development program.

Industry Context

This announcement reflects the ongoing efforts of oil and gas companies to optimize production and explore new development opportunities. The focus on enhanced oil recovery (EOR) and seismic imaging aligns with industry trends aimed at maximizing resource extraction and reducing costs. The company's activities in both the Williston Basin (North Dakota) and the Permian Basin (New Mexico) are consistent with the industry's focus on these key producing regions.

Comparison to Industry Standards

• Empire Petroleum's Q1 2024 production of 2,207 Boe/d is relatively modest compared to larger independent oil and gas producers like EOG Resources or Devon Energy, which often report hundreds of thousands of Boe/d.
• The company's focus on EOR in North Dakota is similar to strategies employed by other companies in mature basins to increase production from existing fields, such as Occidental Petroleum's efforts in the Permian Basin.
• The $20.66 million rights offering is a common method for smaller companies to raise capital for development projects, but it is significantly smaller than the capital raises of larger companies.
• The reported net loss of $4.0 million and adjusted EBITDA loss of $0.7 million are not uncommon for smaller exploration and production companies, especially during periods of significant capital investment.
• The company's lease operating expenses of $36.78 per Boe are within the range of industry averages, but higher than some of the most efficient operators.

Legal Proceedings

• The company has initiated legal and regulatory actions against third parties trespassing on the New Mexico water floods.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the dilution from the rights offering, but may be encouraged by the operational progress and future growth plans.
• Employees may be impacted by the increase in headcount and the company's focus on growth.
• Customers will be impacted by the company's production volumes and the quality of its products.
• Suppliers will be impacted by the company's capital expenditures and operational needs.
• Creditors will be impacted by the company's debt levels and its ability to generate cash flow.

Next Steps

• Complete the 3-D seismic data processing and analysis by the end of Q2 2024.
• Complete the remaining 30% of horizontal laterals for initial EOR development in North Dakota in Q2-Q3 2024.
• Complete the first stage of EOR infrastructure in North Dakota in Q2-2024 and the balance in Q3-2024.
• Ramp up initial production impact from EOR in North Dakota from Q3-2024 to Q4-2024 and beyond.
• Continue optimization and evaluation of waterflood units in New Mexico.
• Commence a pilot drilling program in New Mexico after a few more quarters of technical work.

Key Dates

Keywords

oil and gas, production, drilling, seismic, EOR, North Dakota, New Mexico, financial results, rights offering, waterflood