UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_________________
FORM 10-Q
_________________
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2011
or
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
_________________
EMPIRE PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
_________________
| DELAWARE | 001-16653 | 73-1238709 |
| (State or Other Jurisdiction | (Commission | (I.R.S. Employer |
| of Incorporation or Organization) | File Number) | Identification No.) |
4444 E. 66TH STREET, LOWER ANNEX, TULSA,
OKLAHOMA 74136-4207
(Address of Principal Executive Offices) (Zip Code)
918-488-8068
(Registrant’s
telephone number, including area code)
N/A
(Former
name or former address and former fiscal year, if changed since last report)
_________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [x] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by SectionS 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 12, 2011 was 83,564,235.
EMPIRE PETROLEUM CORPORATION
INDEX
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements | |
| Balance Sheets at June 30, 2011 (Unaudited) and December 31, 2010 (Audited) | ||
| Statements of Operations - Three and six months ended June 30, 2011 and 2010 (Unaudited) | ||
| Statement of Cash Flows - Six months ended June 30, 2011 and 2010 (Unaudited) | ||
| Notes to Financial Statements | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 4. | Controls and Procedures |
PART II — OTHER INFORMATION
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 6. | Exhibits | |
| Signatures |
| PART 1. FINANCIAL INFORMATION | ||||||||
| ITEM 1. FINANCIAL STATEMENTS | ||||||||
| EMPIRE PETROLEUM CORPORATION | ||||||||
| BALANCE SHEET | ||||||||
| JUN. 30, 2011 | Dec. 31, 2010 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 15,421 | $ | 68,689 | ||||
| Accounts receivable | 45,915 | 45,915 | ||||||
| Prepaid expenses and other current assets | 1,100 | 7,336 | ||||||
| Total current assets | 62,436 | 121,940 | ||||||
| Property & equipment less accumulated depreciation and depletion | 255,215 | 255,215 | ||||||
| Total assets | $ | 317,651 | $ | 377,155 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 7,248 | $ | 149,065 | ||||
| Notes payable - related party | 100,000 | 0 | ||||||
| Total current liabilities | 107,248 | 149,065 | ||||||
| Total liabilities | 107,248 | 149,065 | ||||||
| Stockholders' equity: | ||||||||
| Common stock - $.001 per value authorized 100,000,000 shares, | 83,564 | 83,069 | ||||||
| issued and outstanding 83,564,235 and 83,069,235 respectively | ||||||||
| Additional paid in capital | 14,013,431 | 13,904,142 | ||||||
| Accumulated deficit | (13,886,592 | ) | (13,759,121 | ) | ||||
| Total stockholders' equity | 210,403 | 228,090 | ||||||
| Total liabilities and stockholders' equity | $ | 317,651 | $ | 377,155 | ||||
| See accompanying notes to unaudited financial statements | ||||||||
| Page 1 | ||||||||
| EMPIRE PETROLEUM CORPORATION | ||||||||||||||||
| STATEMENTS OF OPERATIONS | ||||||||||||||||
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Revenue: | ||||||||||||||||
| Petroleum Sales | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
| 0 | 0 | 0 | 0 | |||||||||||||
| Costs and expenses: | ||||||||||||||||
| Production and operating | 0 | 71,896 | (11,279 | ) | 81,826 | |||||||||||
| General and administrative | 56,777 | 71,369 | 137,510 | 138,430 | ||||||||||||
| 56,777 | 143,265 | 126,231 | 220,256 | |||||||||||||
| Operating loss | (56,777 | ) | (143,265 | ) | (126,231 | ) | (220,256 | ) | ||||||||
| Other income and (expense): | ||||||||||||||||
| Interest income | 2 | 1,266 | 10 | 2,907 | ||||||||||||
| Interest expense | (1,000 | ) | 0 | (1,250 | ) | 0 | ||||||||||
| Total other income (expense) | (998 | ) | 1,266 | (1,240 | ) | 2,907 | ||||||||||
| Net income (loss) | $ | (57,775 | ) | $ | (141,999 | ) | $ | (127,471 | ) | $ | (217,349 | ) | ||||
| Net income (loss) per common | ||||||||||||||||
| share, basic and diluted | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
| Weighted average number of | ||||||||||||||||
| common shares outstanding | ||||||||||||||||
| basic and diluted | 83,564,235 | 78,776,024 | 83,342,735 | 77,931,359 | ||||||||||||
| See accompanying notes to unaudited financial statements | ||||||||||||||||
| Page 2 | ||||||||||||||||
| EMPIRE PETROLEUM CORPORATION | ||||||||
| STATEMENTS OF CASH FLOW | ||||||||
| (UNAUDITED) | ||||||||
| Six Months Ended | ||||||||
| Jun. 30, 2011 | Jun. 30, 2010 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (127,471 | ) | $ | (217,349 | ) | ||
| Adjustments to reconcile net loss to net | ||||||||
| cash used in operating activities: | ||||||||
| Value of services contributed by employee | 25,000 | 25,000 | ||||||
| Stock incentive plan expense | 11,294 | 16,380 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | 0 | 0 | ||||||
| Prepaid expenses | 6,236 | 0 | ||||||
| Accounts payable and accrued liabilities | (68,327 | ) | 9,203 | |||||
| Net cash used in operating activities | (153,268 | ) | (166,766 | ) | ||||
| Cash flow from investing activities: | ||||||||
| Acquisition of lease acres | 0 | (35,000 | ) | |||||
| Well equipment and drilling costs | 0 | (513,389 | ) | |||||
| Net cash provided by (used in) investing | ||||||||
| activities | 0 | (548,389 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from private equity placement | 0 | 460,000 | ||||||
| Proceeds from related party, note payable | 100,000 | 0 | ||||||
| Net cash provided by (used in) financing activities | 100,000 | 0 | ||||||
| Net increase (decrease) in cash | (53,268 | ) | (255,155 | ) | ||||
| Cash - Beginning of period | 68,689 | 1,171,565 | ||||||
| Cash - End of period | $ | 15,421 | $ | 916,410 | ||||
| Supplemental Disclosure for Non Cash Items: | ||||||||
| Common Stock issued for accounts payable | $ | 73,490 | $ | 0 | ||||
| See accompanying notes to unaudited financial statements | ||||||||
| Page 3 | ||||||||
EMPIRE PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2011
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of Empire Petroleum
Corporation ("Empire" or the "Company") have been prepared in accordance
with United States generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
United States generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's financial
position, the results of operations, and the cash flows for the interim
period are included. All adjustments are of a normal, recurring nature.
Operating results for the interim period are not necessarily indicative of
the results that may be expected for the year ending December 31, 2011.
The information contained in this Form 10-Q should be read in
conjunction with the audited financial statements and related notes for
the year ended December 31, 2010 which are contained in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC") on March 23, 2011.
The Company has incurred significant losses in recent years. The
continuation of the Company as a going concern is dependent upon the
ability of the Company to attain future profitable operations and/or
additional debt or equity financing until profitable operations are achieved.
These financial statements have been prepared on the basis of United States
generally accepted accounting principles applicable to a company with
continuing operations, which assume that the Company will continue in
operation for the foreseeable future and will be able to realize its assets
and discharge its obligations in the normal course of operations. Management
believes the going concern assumption to be appropriate for these financial
statements. If the going concern assumption were not appropriate for these
financial statements, then adjustments might be necessary to adjust the
carrying value of assets and liabilities and reported expenses.
The Company continues to explore and develop its oil and gas interests.
The ultimate recoverability of the Company's investment in its oil and gas
interests is dependent upon the existence and discovery of economically
recoverable oil and gas reserves, confirmation of the Company's interest in
the oil and gas interests, the ability of the Company to obtain necessary
financing to further develop the interests, and the ability of the Company
to attain future profitable production.
As of June 30, 2011, the Company had $15,421 of cash on hand. In order
to sustain the Company's operations on a long-term basis, the Company
continues to look for merger opportunities and consider public or private
financings.
Compensation of Officers and Employees
The Company's only executive officer serves without pay or other compensation.
Page 4
The fair value of these services is estimated by management and is recognized
as a capital contribution. For the three months ended June 30, 2011, the
Company recorded $25,000 as a capital contribution by its executive officer.
Fair Value Measurements
The Financial Accounting Standards Board ("FASB") fair value measurement
standards define fair value, establish a consistent framework for
measuring fair value and establish a fair value hierarchy based on the
observability of inputs used to measure fair value. The Company's primary
marketable asset is cash, and it owns no marketable securities.
2. PROPERTY AND EQUIPMENT:
GABBS VALLEY PROSPECT
The Company's leasehold acreage at June 30, 2011 consisted of 48,541 acres.
The Company’s ownership in the leasehold acreage is now 50%.
As of December 31, 2005, there had been no wells drilled on the Gabbs
Valley Prospect. However, in November 2005, the Company received the
results of a 19-mile 2-D swath seismograph survey conducted on the
prospect and, based on the results of the survey, the Company and its
partners determined that a test well should be drilled on the prospect.
The Company also elected to increase its interest in the prospect by
taking a farm-in from Cortez Exploration LLC (formerly O. F. Duffield).
Empire agreed to pay Cortez $675,000 in lease costs plus 45% of the costs
associated with the drilling of a test well to earn an additional 30%
working interest which made its total working interest 40%. The lease block
of 44,604 acres was increased to 75,521 acres by the acquisition of an
additional 30,917 acres from the Department of the Interior (Bureau of
Land Management) in June 2006. The block was reduced to 75,201 acres due
to the expiration of one 320-acre lease during 2007. In 2008 and 2009, the
Company acquired leases on 17,624 additional acres through federal lease
sales, bringing its total to 92,825 acres, however due to lease expirations
in 2010 the total is now 48,541 acres.
After reaching 5,195 feet in connection with drilling the first test well,
the Company and its partners elected to suspend operations on the well, and
released the drilling rig and associated equipment. Company personnel
and consultants then evaluated the drilling and logging data and after the
study was completed, Empire and its partners decided to conduct a thorough
testing program on the well. The Company re-entered the well on April 17,
2007 and conducted a series of drill stem tests and recovered only drilling
mud. It was then determined after considerable study that the formation is
likely very sensitive to mud and water used in drilling which may have caused
clays in the formation to swell preventing any oil that might be present to
flow into the well bore. During 2007, the Company increased its interest in
the prospect leases to 57% when one of the joint participants elected to
surrender its 30% share of the prospect.
In 2008, the Company and its partners engaged W. L. Gore and Associates to
carryout an Amplified Geochemical Imaging Survey which covered approximately
sixteen square miles. The survey was concentrated along the apex of the large
Page 5
Cobble Cuesta structure which included the areas around the Empire Cobble
Cuesta 1-12 exploratory test and the other test well drilled in the immediate
area. Both of these tests encountered oil shows and the geochemical survey
indicated potential hydrocarbons beyond the two well bores. A new
Federal drilling unit was formed and approved by the Bureau of Land
Management. This unit was known as the Paradise Drilling Unit and contained
40,073 acres out of our total lease block then containing 92,825 acres.
In July 2010, the Company entered into a farm-in agreement with its joint
lease holders holding a 41% working interest in the 40,073 acre Paradise
Unit. On July 19, 2010, the Company commenced drilling a test well in the
Paradise Unit on the Gabbs Valley Prospect in Nevada. The Company drilled
the Paradise Unit 2-12 test well to a depth of 4,250 feet before
drilling problems caused the Company to cease drilling. The Company tested
the well between 3,700 feet and 3,782 feet where oil shows had been found.
The Company recovered small amounts of oil containing paraffin, which may have
been restricting the oil flow. However, swab tests failed to increase the oil
flow and the Company has suspended operations on the well and assigned the
lease and the 1-12 and 2-12 wells to the other leasehold owners from which the
Company had taken a farmout. The new owners plan to do further testing on the
2-12 well and assumed liabilities associated with the lease and both the
1-12 and 2-12 wells. Further testing by the new owners is expected in the
third quarter of 2011 pending financing. The Company has utilized the
results of the testing and other factors to determine its next action with
respect to the Gabbs Valley leasehold. The Company is now looking for an
industry partner to take a farmout on approximately 25,000 acres with the
obligation to drill either a Triassic test well or to a depth of 7,000
feet, whichever first occurs.
Sale of Working Interest
In October 2010, the Company sold 7% of its working interest in the Gabbs
Valley Prospect leases for $700,000. In connection with such sale, the
purchasers were granted a working interest in the Paradise Unit 2-12 well,
unit leases and an option to participate in the farmin of the non-unit
leases, which option has expired.
SOUTH OKIE PROSPECT
On August 4, 2009, the Company purchased, for $25,000 and payment of lease
rentals of $4,680, a nine month option to purchase 2,630 net acres of oil and
gas leases known as the South Okie Prospect in Natrona County, Wyoming.
The option allowed the Company to purchase the leasehold interests for
$35,000. The Tensleep Sand at depths from 3,300 feet to 4,500 feet is the
primary target. The Tensleep is an excellent oil reservoir with the potential
of 700 barrels of oil per acre foot recovery. As of December 31, 2009, the
Company acquired 11 miles of seismic data and studies of this data were
completed in early January 2010. An additional geological study was also
completed early in January 2010. Based on these studies, the Company exercised
its option in 2010. Further engineering studies have estimated the reserve
potential of this prospect at between 1,000,000 to 4,000,000 barrels of oil.
Subject to securing additional financing and/or engaging an industry partner,
the Company plans to drill or cause to be drilled a test well in 2011.
3. NOTE PAYABLE - RELATED PARTY
On February 1, 2011 the Albert E. Whitehead Living Trust, under the terms of
Page 6
a convertible note, advanced $100,000 to the Company. The note has a term of
one (1) year and accrues interest at the rate of four (4) percent per annum.
The principal and interest owed under the note may be converted by the holder
into common stock at the strike price of $0.10 per share.
4. EQUITY
On March 17, 2010, John C. Kinard, a member of the Company's Board of
Directors, was issued options to purchase 70,000 shares of the Company's
common stock under the 2006 Stock Incentive Plan at a strike price of $0.25
per share. The options immediately vested and expire after ten years. The
Company recorded an expense of $16,380 for the options. Fair values
were estimated at the date of grant of the options, using the Black-Scholes
Option Valuation Model with the following weighted average assumptions:
risk free interest rate of 3.65%, volatility factor of the expected market
price of the Company's common stock of 162%, no dividend yield, and a weighted
average expected life of the options of 5 years. For the purpose of
determining the expected life of the options, the Company utilizes the
Simplified Method as defined in Staff Accounting Bulletin No. 107 issued by
the SEC.
On September 9, 2010, Alfred H. Pekarek, a consulting geologist to the Company
was issued options to purchase 50,000 shares of the Company's common stock
under the 2006 Stock Incentive Plan at a strike price of $0.26 per share. The
options immediately vested and expire after ten (10) years. The Company
recorded an expense of $11,700 for the options. Fair values were estimated at
the date of grant of the options, using the Black-Scholes Option Valuation
Model with the following weighted average assumptions: risk free interest
rate of 2.77%, volatility factor of the expected market price of the Company's
common stock of 142%, no dividend yield, and a weighted average expected life
of the options of 5 years. For the purpose of determining the expected life
of the options, the Company utilizes the Simplified Method as defined in Staff
Accounting Bulletin No. 107 issued by the SEC.
On Februry 28, 2011, Kevin R. Seth, the newest member of the Company's Board
of Directors, was issued options to purchase 150,000 shares of the Company's
common stock under the 2006 Stock Incentive Plan at a strike price of $0.10
per share. The options immediately vested and expire after ten years. The
Company recorded an expense of $11,295 for the options. Fair values
were estimated at the date of grant of the options, using the Black-Scholes
Option Valuation Model with the following weighted average assumptions:
risk free interest rate of 3.42%, volatility factor of the expected market
price of the Company's common stock of 172%, no dividend yield, and a weighted
average expected life of the options of 5 years. For the purpose of
determining the expected life of the options, the Company utilizes the
Simplified Method as defined in Staff Accounting Bulletin No. 107 issued by
the SEC.
Diluted EPS (Earnings per Share) gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on losses. As a result, if there is a loss from
continuing operations, Diluted EPS is computed in the same manner as Basic
EPS. At June 30, 2011, the Company had 1,245,000 options and 2,222,226
warrants outstanding, that were not included in the calculation of earnings
per share for the period then ended. Such financial instruments may become
dilutive and would then need to be included in future calculations of Diluted
EPS. At June 30, 2011, the outstanding options and warrants were considered
Page 7
anti-dilutive since the respective strike prices were above the market price
and since the Company has incurred losses year to date.
In January 2010, the Company received stock subscriptions of $285,000 as a
part of its then ongoing private placement offering, which concluded on
January 26, 2010. The subscribers received 4,071,428 shares of stock valued
at $.07 per share. Subsequent to the private placement, the Company
determined that it needed to enter into the farm-in agreement and raise
additional funds in order to drill the 2-12 well on the Gabbs Valley
Prospect.
In July 2010, the Company completed its most recent private placement offering
by issuing 4,444,446 shares of common stock, with an aggregate purchase price of
$400,000 and 2,222,226 warrants to purchase shares of common stock at a price of
$.50, which were set to expire in June and July, 2011, however they have been
extended to December 31, 2011. Proceeds from the private placement were
utilized for the Company's share of costs to drill the 2-12 well on the Gabbs
Valley Prospect (See Note 2).
Proceeds of the June-July 2010 private placement were allocated $101,250 to
common stock warrants and $298,750 to common stock and paid in capital. The
value of the warrants was estimated using the Black-Scholes Valuation Model
with the following weighted average assumptions: risk free interest rate of
.30%, no dividend yield, volatility factor of the expected market price of the
Company's common stock of 157%, and a weighted average expected life of the
warrants of one year.
As of June 30, 2011, the Company had outstanding warrants that would have
expired in June and July 2011. On May 3, 2011 the Company extended the term
of the outstanding warrants which allow the holders to purchase 2,222,226 shares
of common stock at a strike price of $0.50, until December 31, 2011. Fair
values of the extended warrants were estimated at the date of extension using
the Black-Scholes Option Valuation Model with the following weighted average
assumptions: risk free interest rate of .09%, volatility factor of the expected
market price of the Company's common stock of 200%, no dividend yield, and a
weighted average expected life of the warrants of 6 months. The outstanding
warrants were valued at $17,778, which had no income statement effect.
Page 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL TO ALL PERIODS
The Company's primary business is the exploration and development of oil and
gas interests. The Company has incurred significant losses from operations,
and there is no assurance that it will achieve profitability or obtain the
funds necessary to finance its operations. For all periods presented, the
Company's effective tax rate is 0%. The Company has generated net operating
losses since inception, which would normally reflect a tax benefit in the
statement of operations and a deferred asset on the balance sheet. However,
because of the current uncertainty as to the Company's ability to achieve
profitability, a valuation reserve has been established that offsets the
amount of any tax benefit available for each period presented in the
statements of operations.
THREE MONTH PERIOD ENDED JUNE 30, 2011, COMPARED TO THREE MONTH PERIOD
ENDED JUNE 30, 2010.
Production and operating expenses decreased $71,896 to $0 for the three
months ended June 30, 2011, from $71,896 for the same period in 2010.
The decrease was due to the expiration of leases on the Gabbs Valley
Prospect which had been paid in the previous year.
General and administrative expenses decreased by $14,592 to $56,777 for the
three months ended June 30, 2011, from $71,369 for the same period in
2010. The decrease was primarily due to the decrease in insurance costs in
2011.
There was no depreciation expense attributable to the three months ended
June 30, 2011 or June 30, 2010 because the depreciable assets were fully
depreciated.
For the reasons discussed above, net loss decreased $84,224 from
$(141,999) for the three months ended June 30, 2010, to $(57,775)
for the three months ended June 30, 2011.
SIX MONTH PERIOD ENDED JUNE 30, 2011, COMPARED TO SIX MONTH PERIOD
ENDED JUNE 30, 2010.
Production and operating expenses decreased $93,105 to $(11,279) for the six
months ended June 30, 2011, from $81,826 for the same period in 2010.
The decrease was primarily due to the expiration of leases on the Gabbs Valley
Prospect which had been paid in the previous year and refunds of certain
drilling costs which were expensed in 2010.
General and administrative expenses decreased by $920 to $137,510 for the
six months ended June 30, 2011, from $138,430 for the same period in
2010. The decrease was primarily due to decreased insurance costs in 2011.
There was no depreciation expense attributable to the six months ended
June 30, 2011 or June 30, 2010 because the depreciable assets were
fully depreciated.
For the reasons discussed above, net loss decreased $89,878 from
$(217,349) for the six months ended June 30, 2010, to $(127,471)
for the six months ended June 30, 2011.
Page 9
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) periodically issues new
accounting standards in a continuing effort to improve standards of financial
accounting and reporting. The Company has reviewed the recently issued
pronouncements and no new accounting standards have been adopted since the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2010 was filed.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of June 30, 2011, the Company had $15,421 of cash on hand. The
Company believes that its cash on hand will allow it to finance its operations
for the next two months. In order to sustain the Company's operations on a
long-term basis, the Company intends to continue to look for merger
opportunities and consider public or private financings. The Company plans to
undertake further exploration of the Gabbs Valley and South Okie Prospects in
2011. The Company will likely look to industry partners to drill the next
wells on these prospects.
OUTLOOK
As stated elsewhere in this Form 10-Q, on May 1, 2007, after further
testing of the Company's 1-12 well in the Gabbs Valley Prospect, the
Company decided to partially plug and abandon the well since no hydrocarbons
were recovered. However, the Company was encouraged by the data it acquired
in connection with the drilling, logging and testing of the well. Such data,
additional studies of such data, the assistance of geological and
engineering consultants and an Advanced Geochemical Imaging Survey conducted
in December 2008 led the Company to determine that further drilling was
warranted. It is possible that excessive mud exposure in the hole for over
five months seriously impeded the process of recovering hydrocarbons. It was
determined that a new test well should be drilled using a different
method of drilling.
The Company drilled the Paradise Unit 2-12 well to a depth of 4,250 feet before
drilling problems caused the Company to cease drilling. The Company recovered
small amounts of oil containing paraffin, which may have been restricting the
oil flow. However, swab tests failed to increase the oil flow and the Company
suspended operations on the well and assigned the lease and the 1-12 and
2-12 wells to the other leasehold owners from which the Company had taken a
farmout. The new owners plan to do further testing on the 2-12 well and
assumed the liabilities associated with the lease and both the 1-12 and 2-12
wells. Further testing by the new owners is expected in the third quarter
pending financing. The Company will reassess its plans for the
Gabbs Valley leasehold, however, additional studies indicate potential drill
sites exist on the remaining acreage and the Company plans to attempt to
associate with industry partner(s) to drill another test well this year on
this prospect.
Subject to securing additional financing and/or engaging an industry partner,
the Company plans to drill or cause to be drilled a test well on its South
Okie Prospect in 2011.
Page 10
MATERIAL RISKS
The Company has incurred significant losses from operations and there is no
assurance that it will achieve profitability or obtain the funds necessary to
finance continued operations. For other material risks, see the Company's
Form 10-K for the period ended December 31, 2010, which was filed on March
23, 2011.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q, including this section, includes certain
statements that may be deemed "forward-looking statements" within the meaning
of federal securities laws. All statements, other than statements of
historical facts, that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future,
including future sources of financing and other possible business
developments, are forward-looking statements. Such statements are subject
to a number of assumptions, risks and uncertainties and could be affected by
a number of different factors, including the Company's failure to secure short
and long-term financing necessary to sustain and grow its operations, increased
competition, changes in the markets in which the Company participates and the
technology utilized by the Company and new legislation regarding environmental
matters. These risks and other risks that could affect the Company's business
are more fully described in reports it files with the SEC, including its Form
10-K for the fiscal year ended December 31, 2010. Actual results may vary
materially from the forward-looking statements.
The Company undertakes no duty to update any of the forward-looking statements
in this Form 10-Q.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out an
evaluation under the supervision of the Company's Chief Executive Officer (and
principal financial officer) of the effectiveness of the design and operation
of the Company's disclosure controls and procedures pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, the
Company's Chief Executive Officer (and principal financial officer) has
concluded that the disclosure controls and procedures as of the end of the
period covered by this report are effective. During the period covered by this
report, there was no change in the Company's internal controls over financial
reporting that has materially affected or that is reasonably likely to
materially affect the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. Exhibits
| 31 | Certification of Chief Executive Officer (and principal financial officer) pursuant to Rules 13a - 14 (a) and 15(d) - 14(a) promulgated under the |
| Securities Exchange Act of 1934, as amended, and Item 601(1) (31) of | |
| Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes- | |
| Oxley Act of 2002 (submitted) herewith. | |
| 32 | Certification of Chief Executive Officer (and principal financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 |
| of the Sarbanes - Oxley Act of 2002 (submitted herewith). | |
| Page 12 | |
EMPIRE PETROLEUM CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
| EMPIRE PETROLEUM CORPORATION | |
| Date: August 12, 2011 | By: /s/ Albert E. Whitehead |
| Albert E. Whitehead | |
| Chairman, Chief Executive Officer and Principal | |
| Financial Officer | |
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