EP

Empire Petroleum ($EP) Director Buys President's Entire $705K Option Sale, Cumulative Purchases Top $1.5M

12/31/2025 22:27

An unusual insider transaction at Empire Petroleum ($EP) has caught market attention. On November 5, President Michael Morrisett sold 187,084 shares of vested stock options at $3.77 per share, totaling $705,000. What makes this remarkable is that Director Phil Mulacek purchased the exact same quantity at the exact same price on the same day—effectively taking the President's entire option liquidation onto his personal balance sheet. Empire Petroleum is a small-cap oil and gas exploration and production (E&P) company operating in Texas, North Dakota, and New Mexico, with a market capitalization of approximately $106 million. The company focuses on conventional onshore oil field development and competes with other small-to-mid-sized E&P firms in an industry currently pressured by falling oil and natural gas prices. Director Mulacek's buying history is extraordinary. Starting with roughly $200,000 in June 2024, he purchased $334,000 across five consecutive days in May 2025, added $213,000 through multiple September transactions, executed the massive $705,000 November purchase, and continued small additions through December. His cumulative purchases now exceed $1.5 million. Notably, he accelerated buying as the stock plummeted 35% from $4.82 in September to $2.93 by late October—displaying conviction precisely when the stock was under severe pressure. For investors, the November 5 transaction structure is critical. The President's sale represents liquidation of stock options vested between 2019-2021, a routine profit-taking action. In contrast, the Director deployed $705,000 of personal capital to absorb the entire block. Direct transfers between executives are rare, and Mulacek's willingness to take on the President's entire position signals extreme optimism about future valuation. If the outlook were uncertain, he would have worried about price pressure from a $705,000 insider sale hitting the market. However, current financials are challenging. Q3 2025 net loss widened to $3.8 million, with revenue declining 14% year-over-year due to lower oil and natural gas prices. Adjusted EBITDA improved to $0.1 million positive, showing operational efficiency gains. The company raised $2.5 million through a rights offering this year to strengthen its balance sheet and is preparing for significant drilling operations in 2026 and Enhanced Oil Recovery (EOR) facility launches in North Dakota. Management expects commodity prices to trend upward over the next 4-6 quarters. Morningstar analysis shows oil and gas E&P stocks currently trading at roughly 30% discounts to fair value, with midcycle oil price forecasts of $60/barrel WTI and $65 Brent. If commodity prices are indeed near trough levels, Empire's production growth (up 15% year-over-year in Q2) could combine with price recovery to drive profitability turnaround. Risks are substantial. First, small-cap energy companies face extreme vulnerability to commodity price volatility. If oil remains depressed longer than expected, losses will persist. Second, cash burn rate is concerning. Continued losses may require additional capital raises, diluting existing shareholders. Third, the President's $705,000 sale, though from option liquidation, represents management reducing direct holdings—a potentially negative signal. Under a bull scenario where oil prices rebound in early 2026 alongside successful Texas and New Mexico drilling operations, production volume increases combined with price appreciation could drive rapid profitability recovery, with shares potentially returning to $5+. The base case assumes gradual oil price recovery with breakeven operations through late 2026, keeping shares in a $3.50-4.50 range. The bear case involves global economic slowdown pushing oil prices lower or drilling delays, with potential dilutive capital raises sending shares below $2. Near-term (1-6 months), price action will track oil prices and 2026 drilling plan clarity. If WTI recovers above $70 by year-end, shares could rebound to $3.50-4.00. Conversely, oil below $60 risks retesting sub-$3 levels. Long-term (6+ months), 2026 drilling results and EOR facility performance are pivotal. Successful production expansion and cost reduction could drive structural profitability improvement, while failure exposes survival risks typical of small-cap energy operators. In conclusion, Empire Petroleum faces financial weakness but the Director's massive sustained buying cannot be dismissed. Over $1.5 million in personal capital deployed consistently through a sharp price decline signals an insider with full information views current valuation as deeply undervalued. Investors should interpret this insider activity as a medium-to-long-term value recovery bet rather than short-term speculation. However, given the sector's high volatility and capital raise risks, position sizing should remain small within diversified portfolios. If commodity price recovery and drilling success both materialize, substantial returns are possible—but until then, loss risk remains significant.