EP

Empire Petroleum ($EP) Director Bets $1.4M Against $17M Annual Loss — Q4 EOR Project Is Make-or-Break Moment

01/05/2026 22:27

Empire Petroleum's ($EP) November 5 insider filing looks shocking at first glance: Director Phil Mulacek purchased $705,306 worth of shares the exact same day President Michael Morrisett sold the identical amount. But dig deeper and this appears to be a transfer between executives rather than two independent trades—Morrisett exercised stock options vested between 2019-2021, and Mulacek acquired those shares. The more important signal is Mulacek's relentless buying pattern. From June 2024 through December 2025, he systematically accumulated shares at every dip, totaling approximately $1.4 million. In November, another director Benjamin Marchive joined with a $6,282 purchase. Empire Petroleum is a Tulsa, Oklahoma-based oil and gas exploration and production company founded in 1983, operating properties across New Mexico, North Dakota, Montana, Texas, and Louisiana. With a market cap of $104 million and just 63 employees, it's a small-cap player in a sector dominated by majors like ConocoPhillips and EOG Resources. Unlike those giants, Empire focuses on niche regional field development. When a director of such a small company invests $1.4 million of personal capital, it signals substantial conviction. Yet the financial reality is brutal. The company posted five consecutive quarterly losses from Q2 2024 through Q3 2025. Q2 2024 revenue of $12.8 million generated a net loss of $4.4 million; Q3 revenue of $10.9 million resulted in a $3.6 million loss; Q4 revenue of $10.1 million produced a $4.2 million loss; Q1 2025 revenue of $9.0 million led to a $4.2 million loss; and Q2 2025's loss widened to $5.1 million despite 15% production growth. Trailing twelve-month net loss stands at $17.31 million with EPS of -$0.52. Profit margin is deeply negative at -45.71%, and ROE is -31.42%. Revenue trended downward quarter after quarter. But Q3 showed a subtle shift: adjusted EBITDA turned positive at $0.1 million, breaking a streak of negative quarters. While Q2 saw production increase 15% year-over-year, lower realized commodity prices widened losses. However, management forecasts commodity prices will "trend upward over the next 4-6 quarters." Indeed, crude oil rose 1.8% as of January 5, 2026, and energy stocks surged following Trump's Venezuela policy announcement—Chevron up 5.1%, ExxonMobil up 2.21%. Empire's core strategy revolves around Enhanced Oil Recovery (EOR) technology. The North Dakota EOR project is scheduled to become operational in Q4 2025, designed to extract additional oil from existing fields more cost-effectively than drilling new wells. Management expects "increased production levels within the next 6-9 months." For 2026, the company plans significant drilling operations in Texas and New Mexico focused on natural gas-led development. The Q3 earnings call specifically targeted "initiating drilling operations in 2026." Capital constraints remain a chokepoint. The company raised $5.0 million in Q2 2025 and $2.5 million in Q3 2025 through rights offerings. Cash on hand was just $4.6 million in the most recent quarter, with levered free cash flow at -$10.01 million. While the debt-to-equity ratio of 30.47% is manageable, persistent cash burn makes additional capital raises inevitable, diluting existing shareholders. The stock price reflects this stress, plunging 35% from $4.82 on September 26 to $3.15 on December 17, 2025—down 62% year-to-date and 60% off the 52-week high of $7.82. Why does Director Mulacek keep buying? His purchase history reveals a pattern: $5.29 in June 2024, $4.98 in September, $5.12 in April 2025, $4.00-4.05 in May, $3.98-4.08 in September, $3.58-3.75 in October, $3.77 in November, and $3.00 in December. He's methodically averaging down, betting that EOR success and 2026 drilling plans will trigger a rebound. For a director of a small oil company to deploy this much personal capital suggests conviction based on inside knowledge. Yet investors must exercise caution. First, the company is losing $17+ million annually with rapid cash burn. Second, revenue is declining despite production growth as lower oil prices offset volume gains. Third, the $100 million market cap creates severe liquidity risk. Fourth, whether the EOR project and 2026 drilling plans actually generate profits remains uncertain—small E&P companies face high technical and financial execution risks. A positive scenario exists nonetheless. If the EOR project launches successfully in Q4 as planned, production genuinely increases, and oil prices rise over the next six months as management forecasts, what happens? If EBITDA stays positive like Q3 and 2026 drilling proceeds smoothly, breakeven could be achievable. In that case, the stock could rebound from the low-$3 range to $5-6. Director buying appears to bet on exactly this outcome. The downside scenario is equally plausible. If EOR is delayed or underperforms, oil prices fall, and additional capital raises fail, the company faces serious liquidity crisis. With just $4.6 million cash and $4-5 million quarterly losses, funds could be exhausted within 2-3 quarters without additional cash inflows. Massive dilutive equity raises or asset sales would become unavoidable, potentially pushing the stock below the 52-week low of $2.78. Current market conditions favor the energy sector. Trump administration policies, Venezuela sanctions, and global supply constraints support higher oil prices. JP Morgan forecasts double-digit US equity gains in 2026 but warns of 35% recession probability. The Conference Board's December consumer confidence index fell to 89.1, the fifth consecutive monthly decline, potentially reducing energy demand. While the small-cap Russell 2000 index hit all-time highs—positive for small stocks—risks are magnified for unprofitable companies like Empire. Clear investment criteria matter. Positive signals: ①Successful Q4 EOR project launch announcement ②Consecutive quarters of positive EBITDA ③20%+ production increase ④WTI crude stabilizing above $80/barrel. If three or more occur, rebound probability increases. Warning signals: ①EOR project delays or underperformance ②Quarterly losses exceeding $6 million ③Major dilutive equity raise announcements ④WTI crude falling below $70/barrel. If two or more materialize, exit should be considered. Short-term over 1-3 months, Q4 earnings and EOR operational news are critical. If EOR launches on schedule with positive initial production data, the stock could rebound to $3.50-4.00. But additional equity raise announcements or project delays could pressure it to $2.50-2.80. Over 4-6 months, Q1 2026 results become the watershed. If Q1 confirms positive EBITDA and drilling plans materialize, recovery to $4.50-5.50 is possible. Long-term, H2 2026 drilling outcomes are decisive. If Empire achieves breakeven and generates sustainable cash flow, market cap could grow to $200-300 million, implying $6-9 per share. But this is highly optimistic. Realistically, small E&P companies struggle to achieve consistent profitability due to commodity price volatility, technical risks, and capital constraints. In conclusion, Empire Petroleum is a high-risk speculative stock where strong insider buying signals collide with brutal financial performance. Director Mulacek's $1.4 million investment is meaningful but doesn't justify $17 million annual losses and declining revenue alone. This stock suits ①investors with high risk tolerance ②those with energy sector expertise ③those seeking small, high-risk/high-reward bets. Position sizing beyond 1-2% of a portfolio is inadvisable. Prudent investors should wait for Q4 results and EOR project outcomes before committing capital. If investing, accumulate small positions below $3 with strict 20-30% stop-loss limits.