8-K: Empire Petroleum Q3 2025: Production Up, Texas Drilling Delayed

Empire Petroleum reported a 5% increase in Q3 2025 net oil production, alongside a net loss of $3.8 million, and announced a strategic delay in its Texas drilling campaign to 2026.

Summary

• Net production volumes for Q3-2025 were 1,566 barrels of oil per day (Bbls/d), a 5% increase compared to Q2-2025, and 2,398 barrels of oil equivalent per day (Boe/d).
• Total product revenue for Q3-2025 was $9.4 million, a decrease from $10.9 million in Q3-2024, primarily due to lower average oil and NGL realized prices.
• The company reported a net loss of $3.8 million, or ($0.11) per diluted share, for Q3-2025, compared to a net loss of $3.6 million, or ($0.12) per diluted share, in Q3-2024.
• Adjusted EBITDA for Q3-2025 was $0.1 million, a significant improvement from ($1.2) million in Q2-2025 and ($0.1) million in Q3-2024.
• Empire successfully completed a subscription rights offering in Q3-2025, generating approximately $2.5 million in gross proceeds, with subscriptions exceeding 100% of available securities.
• The company is advancing enhanced oil recovery (EOR) efforts in North Dakota, completing modified wellhead installations and filing a patent for proprietary hydrocarbon vaporization technology.
• Preparations for the inaugural drilling campaign in Texas are ongoing, but the start of drilling operations is strategically paced to 2026 due to current commodity prices.
• In New Mexico, the Conservation Commission affirmed Empire's exclusive rights to the Residual Oil Zone (ROZ) in the Eunice Monument South Units (EMSU) and denied/suspended competitor saltwater disposal (SWD) wells, though a rehearing is pending.

Sentiment

Score: 6

Explanation: While Q3 financial results show a net loss and revenue decline year-over-year, operational improvements in North Dakota EOR, a successful and oversubscribed capital raise, and a favorable legal ruling in New Mexico are positive. The strategic delay in Texas drilling, though a short-term deferral, is framed as a prudent move to optimize for future market conditions, particularly in natural gas, indicating a forward-looking and disciplined approach.

Positives

• Net oil production increased by 5% to 1,566 Bbls/d in Q3-2025 compared to Q2-2025.
• Adjusted EBITDA improved significantly to $0.1 million in Q3-2025 from a negative value in prior periods, indicating improved operational profitability.
• The successful completion of the subscription rights offering raised approximately $2.5 million, demonstrating strong shareholder confidence with over 100% subscription.
• Advancements in enhanced oil recovery (EOR) efforts in North Dakota, including system reliability improvements and a final patent filing for proprietary technology.
• A favorable ruling from the New Mexico Conservation Commission affirming Empire's exclusive ROZ rights and suspending competitor SWD wells, which is expected to reduce operating expenses and improve financial performance.

Negatives

• Reported a net loss of $3.8 million in Q3-2025, an increase from $3.6 million in Q3-2024.
• Total product revenue decreased to $9.4 million in Q3-2025 from $10.9 million in Q3-2024, primarily due to lower realized prices.
• Realized oil and natural gas liquids prices decreased by 15% and 33% respectively compared to Q3-2024 due to a general decline in market pricing.
• The inaugural drilling campaign in Texas has been strategically delayed to 2026, pushing back potential production growth from this region.
• Increased Depreciation, Depletion, and Amortization (DD&A) to $3.3 million in Q3-2025 from $3.1 million in Q3-2024, partly due to capitalized costs from new drilling.

Risks

• Future commodity prices, which can significantly impact revenue and profitability.
• The company's ability to acquire productive oil and/or gas properties or to successfully drill and complete wells.
• General economic conditions, both domestically and abroad, including inflation, tariffs, and interest rates.
• Uncertainties associated with legal and regulatory matters, such as the pending rehearing on the New Mexico Conservation Commission Order.
• Risks related to the successful completion of the Rights Offering, including future exercise of the warrants issued as part of the offering.

Future Outlook

The company is focused on operational excellence, capital efficiency, and strategic development sequencing. It is building operational flexibility by progressing drilled-but-uncompleted (DUC) wells to efficiently transition into higher-value gas development in 2026, anticipating natural gas to play an increasingly meaningful role in its development strategy and earnings growth. Empire also expects to build additional production in New Mexico, a key driver of future growth.

Management Comments

• "Empire continues to execute with precision and discipline as we move through the remainder of 2025. Our operational teams are achieving measurable progress across multiple fronts, from consistent improvement in North Dakota's EOR program to ongoing technical advancements in Texas." Phil Mulacek, Chairman of the Board.
• "The natural gas market has shifted significantly over the past several years, with U.S. liquefied natural gas exports now exceeding approximately 18 billion cubic feet per day compared to near zero just over a decade ago, and pricing strengthening from lows near $1.35 per thousand cubic feet (Mcf) toward long-term historical averages in the $4.00-$5.00/Mcf range." Phil Mulacek, Chairman of the Board.
• "The recent successful completion of the Rights Offering, particularly during a period of commodity price volatility, underscores the confidence and alignment of our shareholders. We greatly appreciate their continued support and belief in Empire's long-term strategy." Phil Mulacek, Chairman of the Board.
• "Our third quarter results reflect steady operational execution and focused progress across Empire's core assets. In North Dakota, recent upgrades and system enhancements have improved reliability and consistency, setting the stage for stable production levels." Mike Morrisett, President and CEO.
• "The strong participation in our Rights Offering reflects continued confidence in Empire's direction, and we're deeply appreciative of that support as we work to execute on our development plan. With disciplined capital management and a clear operational roadmap, Empire is entering 2026 with momentum, flexibility, and a focused path toward scalable growth." Mike Morrisett, President and CEO.

Industry Context

The announcement highlights a significant shift in the natural gas market, with U.S. liquefied natural gas (LNG) exports now exceeding approximately 18 billion cubic feet per day, a substantial increase from a decade ago. Natural gas pricing is strengthening from lows near $1.35 per thousand cubic feet (Mcf) towards historical averages of $4.00-$5.00/Mcf, driven by accelerating demand from data centers, industrial users, and exports into Mexico. Empire Petroleum is strategically positioning itself to capitalize on this trend by focusing on higher-value gas development in 2026.

Legal Proceedings

• The New Mexico Conservation Commission issued Order No. R-24004, affirming Empire's exclusive rights to the Residual Oil Zone (ROZ) in the Eunice Monument South Units (EMSU) Unitized Interval.
• The Commission denied Goodnight's applications to drill five new saltwater disposal (SWD) wells within the EMSU boundaries and to increase injection volumes in an existing SWD well.
• Goodnight's four SWD wells located within the EMSU boundaries were suspended to provide Empire the opportunity to establish a CO2 EOR pilot project.
• A limited request for stay and rehearing has been granted to consider the authority for suspension and the discretion of the New Mexico Oil Conservation Division in implementing the Order; Empire is awaiting the Commission's decision.
• Empire plans to proceed with motions to revoke existing permits for other SWD companies and advance litigation for trespass and damages.

Related Party Transactions

• Phil E. Mulacek, Chairman of the Board of Empire and one of the company's largest shareholders, participated in the Rights Offering, fully subscribing to his rights and exercising his over-subscription rights to purchase his pro-rata share of remaining unsubscribed securities.

Stakeholder Impact

• Shareholders: Benefited from the successful and oversubscribed rights offering, indicating strong confidence. Potential for long-term value creation from strategic development pacing and legal resolution in New Mexico.
• Employees: Continued operational execution across core assets in North Dakota, New Mexico, and Texas.
• Customers: Continued production of oil, natural gas liquids, and natural gas.
• Creditors: Increased outstanding balance on the credit facility and additional equipment/vehicle notes, leading to slightly higher interest expense.

Next Steps

• Initiate re-entry and workover rig operations on the initial well location in Texas in Q4-2025 to finalize target zones for optimal lateral location.
• Target the start of drilling operations in Texas in 2026, utilizing approximately a dozen DUC wells for gas-focused development.
• Proceed with motions to revoke existing permits granted to the remaining three SWD Companies disposing wastewater into the EMSU and Arrowhead Grayburg Unit Unitized Interval in New Mexico.
• Concurrently advance litigation for trespass and damages in New Mexico.
• Await the New Mexico Conservation Commission's decision on the limited request for stay and rehearing regarding the ROZ order.
• Evaluate opportunities to apply its proprietary EOR model across additional assets in North Dakota.

Key Dates

Recommendation

Empire Petroleum's Q3 2025 results present a mixed picture. While the company reported a net loss and a year-over-year decline in revenue due to lower commodity prices, there are several positive operational and strategic developments. The 5% increase in Q3 oil production from Q2, the significant improvement in Adjusted EBITDA, and the successful, oversubscribed rights offering demonstrate underlying operational strength and investor confidence. The strategic delay of the Texas drilling campaign to 2026, while deferring immediate growth, is a prudent move to align with more favorable commodity prices, particularly in the strengthening natural gas market. Furthermore, the favorable New Mexico legal ruling, despite a pending rehearing, provides a clear path to reducing operating expenses and enhancing future performance. Given the current financial performance, a 'buy' recommendation is premature, but the strategic positioning for 2026 growth, particularly in natural gas, and the successful capital raise warrant a 'hold' as the company executes its roadmap.

Keywords

Oil and Gas, Petroleum, Q3 2025 Results, Production, Enhanced Oil Recovery, EOR, Texas Drilling, New Mexico ROZ, Rights Offering, Adjusted EBITDA, NYSE American: EP