UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM
For
the Quarterly Period Ended
OR
For the transition period from _______ to ________.
Commission
file number:
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data
File required to be submitted 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 such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |
| ☒ | Smaller Reporting Company | |||
| Emerging Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
As of March 13, 2025, there were shares of the registrant’s common stock outstanding.
TRIO PETROLEUM CORP.
FORM 10-Q
For the Quarter Ended January 31, 2025
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIO PETROLEUM CORP.
CONDENSED BALANCE SHEETS
| January 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Oil and gas properties - not subject to amortization | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Asset retirement obligations - current | ||||||||
| Due to operators | ||||||||
| Promissory notes, net of discounts | ||||||||
| Note payable - related party | ||||||||
| Payable - related party | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Asset retirement obligations, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; shares authorized; -- shares issued and outstanding at January 31, 2025 and October 31, 2024, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of January 31, 2025 and October 31, 2024, respectively | ||||||||
| Stock subscription receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| 3 |
TRIO PETROLEUM CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues, net | $ | $ | ||||||
| Operating expenses: | ||||||||
| Exploration expense | $ | $ | ||||||
| General and administrative expense | ||||||||
| Stock-based compensation expense | ||||||||
| Accretion expense | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses: | ||||||||
| Interest expense | ||||||||
| Loss on note conversion | ||||||||
| Total other expenses | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and Diluted Net Loss per Common Share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
TRIO PETROLEUM CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 2025 AND 2024
(Unaudited)
| Stock | Additional | Total | ||||||||||||||||||||||
| Common Stock | Subscription | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Receivable | Capital | Deficit | Equity | |||||||||||||||||||
| Balance at October 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of common shares to executives and board members | ( | ) | ||||||||||||||||||||||
| Issuance of common shares in connection with ATM agreement, net | ||||||||||||||||||||||||
| Issuance of common shares in lieu of cash payments on promissory notes | ||||||||||||||||||||||||
| Issuance of beneficial ownership round-up shares for participants | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at January 31, 2025 | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at October 31, 2023 | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Issuance of common shares in lieu of cash payments on convertible note | ||||||||||||||||||||||||
| Issuance of common shares to consultants | ||||||||||||||||||||||||
| Issuance of equity warrants in connection with convertible note | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at January 31, 2024 | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
TRIO PETROLEUM CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Issuance of common shares for services | ||||||||
| Issuance of equity warrants connected to convertible note | ||||||||
| Conversion of note payments into common shares | ||||||||
| Accretion expense | ||||||||
| Loss on issuance of common shares in lieu of cash for debt payments | ||||||||
| Debt discounts - convertible note | ( | ) | ||||||
| Amortization of debt discounts | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures for unproved oil and gas properties | ( | ) | ( | ) | ||||
| Payable to a related party | ||||||||
| Due to operators | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note | ||||||||
| Proceeds from issuance of common shares in connection with ATM agreement | ||||||||
| Payment of convertible note | ( | ) | ||||||
| Payment of debt issuance costs | ( | ) | ||||||
| Payment of related party debt | ( | ) | ||||||
| Payment of promissory notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH | ( | ) | ||||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Issuance of warrants | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
TRIO PETROLEUM CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2025
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Company Organization
Trio Petroleum Corp. (“Trio Petroleum”, the “Company” or “TPET”) is a California-based oil and gas exploration and development company headquartered in Bakersfield, California, with its principal executive offices located at 5401 Business Park South, Suite 115, Bakersfield, California 93309, and with operations in Monterey County, California, and Uintah County, Utah. The Company was incorporated on July 19, 2021, under the laws of Delaware to acquire, fund, and operate oil and gas exploration, development and production projects, initially focusing on one major asset in California, the South Salinas Project (“South Salinas Project”). The Company has since acquired interests in the McCool Ranch Oil Field in Monterey County, California, and in the Asphalt Ridge Project in Uintah County, Utah. The Company has had revenue-generating operations since the McCool Ranch Oil Field was restarted on February 22, 2024, and recognized its first revenues in the fiscal quarter ended April 30, 2024, and received the proceeds from these operations in June 2024.
Acquisition of South Salinas Project
The
Company was initially formed to acquire from Trio Petroleum LLC (“Trio LLC”) an approximate
There
are two contiguous areas of notable oil/gas accumulations in the South Salinas Project; the first is the Humpback Area that occurs in
the northern part of the project and the second is the Presidents Area (“Presidents Oil Field”) that occurs in the southern
part of the project. As of January 31, 2025 and October 31, 2024, there were no proved reserves attributable to the approximate
Initial Public Offering
The
Company’s Registration Statement (Amendment No. 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering
was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”).
The Company sold shares of its common stock for total gross proceeds of $
Additional Acquisitions - McCool Ranch Oil Field & Asphalt Ridge Leasehold
In
October 2023, the Company entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for purchase of a
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
| 7 |
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts presented in the balance sheet as of October 31, 2024 are derived from our audited financial statements as of that date. The unaudited condensed financial statements as of and for the three month periods ended January 31, 2025 and 2024 have been prepared in accordance U.S. GAAP and the interim reporting rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K/A filed with the SEC on February 27, 2025. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent assets and liabilities at the date of the financial statements, and the revenue and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, bad debt expense, ARO and the valuation of equity-based transactions. Accordingly, actual results could differ significantly from those estimates.
Cash and cash equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had
Prepaid Expenses
Prepaid
expenses consist primarily of prepaid services which will be expensed as the services are provided within twelve months. As of January
31, 2025 and October 31, 2024, the balances of the prepaids account were $
Debt Issuance Costs
Costs
incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized
over the life of the associated debt as a component of interest expense. As of January 31, 2025 and October 31, 2024, the Company recorded
| 8 |
Oil and Gas Assets and Exploration Costs – Successful Efforts
The Company’s projects are in exploration and/or early production stages and the Company began generating revenue from its operations during the quarterly period ended April 30, 2024. It applies the successful efforts method of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence to justify potential development of reserves, drilling costs associated with the property are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory property costs considering ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to occur, associated exploratory well costs are expensed.
Costs to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field basis, as estimated by qualified petroleum engineers. The Company currently has four wells that are producing (one well in President’s Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and is evaluating the impact of production on the reserve determination for those wells and fields. The Company expects to add the reserve value of such fields to the Company’s reserve report after a further period of observation and review of the oil production. As of January 31, 2025 and October 31, 2024, all of the Company’s oil and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization.
Unproved oil and natural gas properties
Unproved oil and natural gas properties have unproved lease acquisition costs, which are capitalized until the lease expires or otherwise until the Company specifically identifies a lease that will revert to the lessor, at which time the Company charges the associated unproved lease acquisition costs to exploration costs.
Unproved oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. The Company currently has four wells that are producing (one well in President’s Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and is evaluating the impact of production on the reserve determination for those wells and fields. The Company expects to add the reserve value of such fields to the Company’s reserve report after a further period of observation and review of the oil production. As of January 31, 2025 and October 31, 2024, all of the Company’s oil and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization; see further discussion in Note 6.
Impairment of Other Long-lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to proved properties.
As
of January 31, 2025 and October 31, 2024, the Company had
Asset Retirement Obligations
ARO consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project (“SSP”) acquisition described above, the Company acquired the plugging and abandonment liabilities associated with six non-producing wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase in the carrying amount of oil and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired in the SSP acquisition in future exploration, production and/or disposal (i.e., disposal of produced water or CO2 by injection) activities. The liability is accreted for the change in its present value each period based on the expected dates that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
| 9 |
Components of the changes in ARO are shown below:
| ARO, ending balance – October 31, 2024 | $ | |||
| Accretion expense | ||||
| ARO, ending balance – January 31, 2025 | ||||
| Less: ARO – current | ||||
| ARO, net of current portion – January 31, 2025 | $ |
Revenue Recognition
ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”) requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services; refer to Note 5 – Revenue from Contracts with Customers for additional information.
The Company’s revenue is comprised of revenue from exploration and production activities to produce oil. The Company’s oil is sold to one customer who is a marketer, and payment is received in the month following delivery.
The Company recognizes sales revenues from oil when control transfers to the customer at the time of delivery. Revenue is measured based on the contract price, which may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation or short load fees.
Revenues are recognized for the sale of the Company’s percentage of working interest, adjusted for any incoming and outstanding expenses and oil and gas assessments.
Related Parties
Related
parties are directly or indirectly related to the Company, through one or more intermediaries and are in control, controlled by, or under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might
be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On September 14, 2021,
the Company acquired an
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At January 31, 2025 and October 31, 2024, the Company’s net deferred tax asset has been fully reserved.
For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. The Company is subject to income tax examinations by major taxing authorities since inception.
Fair Value Measurements
The carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement. As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent measurement.
| 10 |
| Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. |
| Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
There are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment.
The fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation.
The fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; (iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level 3 inputs.
If the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property, Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected. These assumptions represent Level 3 inputs.
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic loss per share, except the weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, warrants and convertible notes, if dilutive.
| As of January 31, | As of January 31, | |||||||
| 2025 | 2024 | |||||||
| Warrants | (1) | (2) | ||||||
| Total potentially dilutive securities | ||||||||
| (1) | |
| (2) |
Environmental Expenditures
The operations of the Company have been, and may in the future be, affected from time to time to varying degrees by changes in environmental regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application of technically proven and economically feasible measures.
Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.
Recent Accounting Pronouncements
All recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Reclassification of Expenses
Certain amounts in the prior periods presented have been reclassified to a current period financial statement presentation. This reclassification has no effect on previously reported net income.
Subsequent Events
The Company evaluated all events and transactions that occurred after January 31, 2025 through the date of the filing of this report. See Note 11 for such events and transactions.
| 11 |
NOTE 3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of January 31, 2025, the Company had $
The
accompanying condensed financial statements have been prepared on the basis that the Company will continue as a going concern over the
next twelve months from the date of issuance of these financial statements, which assumes the realization of assets and the satisfaction
of liabilities in the normal course of business. As of January 31, 2025, the Company has an accumulated deficit of $
Accordingly, the accompanying condensed financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – INITIAL PUBLIC OFFERING
The
Company’s Registration Statement (Amendment No. 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering
was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”).
The Company sold shares of common stock at a public offering price of $ per share for gross proceeds of $
| 12 |
NOTE 5 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates revenue by significant product type for the periods below:
| For the three months ended January 31, | For the three months ended January 31, | |||||||
| 2025 | 2024 | |||||||
| Oil sales | $ | $ | ||||||
| Total revenues from customers | $ | $ | ||||||
There
were
Significant concentrations of credit risk
For
the three months ended January 31, 2025 and 2024, the Company had only one purchaser, which accounts for
NOTE 6 – OIL AND NATURAL GAS PROPERTIES
The following tables summarize the Company’s oil and gas activities.
| As of | As of | |||||||
| January 31, 2025 | October 31, 2024 | |||||||
| Oil and gas properties – not subject to amortization | $ | $ | ||||||
| Accumulated impairment | ||||||||
| Oil and gas properties – not subject to amortization, net | $ | $ | ||||||
During
the three months ended January 31, 2025 and 2024, the Company incurred aggregated exploration costs of $
| 13 |
Leases
South Salinas Project
As
of October 31, 2024, the Company holds interests in various leases related to the unproved properties of the South Salinas Project (see
Note 8); two of the leases are held with the same lessor. The first lease, which covers
The
second lease covers
During
February and March of 2023, the Company entered into additional leases related to the unproved properties of the South Salinas Project
with two groups of lessors. The first group of leases covers
McCool Ranch Oil Field
In
October 2023, the Company entered into the McCool Ranch Purchase Agreement with Trio LLC for purchase of a
The
Company holds interests in various leases related to the unproved properties of the McCool Ranch Oil Field; these leases occur in two
parcels, “Parcel 1” and “Parcel 2”. Parcel 1 comprises ten leases and approximately
Optioned Assets – Asphalt Ridge Leasehold Acquisition & Development Option Agreement
On
November 10, 2023, the Company entered into the ARLO Agreement with HSO for a term of nine months which gives the Company the exclusive
right to acquire up to a
On
December 29, 2023, the Company entered into an amendment to the ARLO Agreement, whereby the Company funded $
Per
the most recent amendment to the ARLO Agreement signed in January 2025, the Company has until April 10, 2025 to pay HSO an additional
$
Entry into a Letter of Intent to Acquire Novacor Exploration Ltd. Oil and Gas Assets in Saskatchewan, Canada
On
December 18, 2024, the Company entered into a non-binding Letter of Intent (“LOI”) for the acquisition of a
| 14 |
NOTE 7 – RELATED PARTY TRANSACTIONS
South Salinas Project – Related Party
Upon
its formation, the Company acquired from Trio LLC a majority working interest in the South Salinas Project and engaged the services of
certain members of Trio LLC to manage the Company’s assets (see Note 1 and Note 6). Trio LLC operates the South Salinas Project
on behalf of the Company, and as operator, conducts and has full control of the operations within the constraints of the Joint Operating
Agreement, and acts in the capacity of an independent contractor. Trio LLC currently holds a
McCool Ranch Oil Field Asset Purchase – Related Party
On
October 16, 2023, the Company entered into the McCool Ranch Purchase Agreement with Trio LLC for purchase of a
Restricted Stock Units (“RSUs”) issued to Directors
On
June 19, 2024, the Company agreed to award restricted stock units to a newly appointed director under the Plan; as there were
only shares remaining for issuance under the Plan at that time, RSUs were awarded immediately with a fair value of $
per share for a grant date value of $
On
October 21, 2024, the Company agreed to award restricted stock units to a newly appointed director under the Plan; the RSUs vest
at a rate of % upon the six month anniversary of the commencement date and were recorded at a fair value of $ per share for a
grant date value of $
Restricted Shares issued to Executives and Employees
In
May 2023, the Company entered into six employee agreements which, among other things, provided for the grant of an aggregate of
restricted shares pursuant to the Plan. Per the terms of the employee agreements, subject to continued employment, the restricted shares
vest as follows: % of the shares vested five months after the issuance date, after which the remainder vest in equal tranches every
six months until fully vested. The shares were recorded on the date of issuance at a fair value of $ per share for an aggregate
fair value of $
On
July 11, 2024, the Company and Mr. Peterson (the Company’s former Chief Executive Officer) entered into a three-month consulting
agreement, which includes a monthly cash fee of $
On
July 11, 2024, the Company entered into an employment agreement with Mr. Robin Ross, pursuant to which Mr. Ross will serve as Chief Executive
Officer of the Company, replacing Mr. Peterson. Pursuant to the Ross Employment Agreement, Mr. Ross will be paid an annual base salary
of $
On
October 21, 2024, the Company agreed to award restricted stock units to its CFO under the Plan; the RSUs vest at a rate of %
upon the six month anniversary of the commencement date and were recorded at a fair value of $ per share for a grant date value of
$
| 15 |
Note Payable – Related Party
On
March 26, 2024, the Company borrowed $
On
September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note;
each amendment extended the maturity dates to October 28, 2024 and November 30, 2024, respectively, and added a $
Consulting Agreement
On
December 31, 2024, the employment agreement between the Company and Mr. Overholtzer ended and on January 1, 2025, the Company entered
into an independent contractor agreement with Mr. Overholtzer, under which he continues to serve as the Chief Financial Officer of the
Company and is paid a monthly fee of $
NOTE 8 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations, or cash flows of the Company.
Unproved Property Leases
The
Company holds interests in various leases related to the unproved properties of the South Salinas Project (see Note 6); two of the leases
are held with the same lessor. The first lease, which covers
The
second lease covers
The
Company holds interests in various leases related to the unproved properties of the McCool Ranch Oil Field. These leases occur in two
parcels, “Parcel 1” and “Parcel 2”. Parcel 1 comprises ten leases and approximately
During
February and March of 2023, the Company entered into additional leases related to the unproved properties of the South Salinas Project
with two groups of lessors. The first group of leases covers
On
November 10, 2023, the Company entered into the ARLO Agreement with HSO for a term of nine months which allows the Company the exclusive
right to acquire up to a
On
December 29, 2023, the Company entered into an amendment to the ARLO Agreement, whereby the Company funded $
Per
the most recent amendment to the ARLO Agreement signed in January 2025, the Company has until April 10, 2025 to pay HSO an additional
$
| 16 |
Board of Directors Compensation
On
July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company, which
would be effective upon the consummation of the IPO. Such compensation is structured as follows: an annual retainer of $ cash plus
an additional $ for each Board committee upon which the Director serves, each paid quarterly in arrears. Payment for this approved
compensation commenced upon successful completion of the Company’s IPO in April 2023; for the three months ended January 31, 2025
and 2024, the Company has recognized $
Agreements with Advisors
On
July 28, 2022, the Company entered into a placement agent agreement with the Placement Agent with Spartan Capital Securities, LLC (“Spartan”),
whereby Spartan agreed to serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for a one-year
term. The agreement provided for a $
On
October 4, 2023 and December 29, 2023, the Company entered into additional placement agent agreements with Spartan, whereby Spartan would
serve as the exclusive placement agent in connection with the closing of private placements. The agreements provided the agent with
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard from the NYSE American
On November 5, 2024, the Company received notice from NYSE American that NYSE American had halted trading in the shares of the Common Stock until the effectiveness of the reverse stock split the Company intended to effect because its common stock was consistently selling at a low selling price per share in violation of Section 1003(f)(v) of the NYSE American Company Guide. NYSE American informed the Company that it would attempt to reopen trading in the Common Stock on November 15, 2024, which is when the common stock is expected to begin trading on a post-split basis, provided that NYSE American no longer deems the selling price of the Common Stock to be too low.
| 17 |
NOTE 9 – NOTES PAYABLE
Notes payable as of January 31, 2025 and October 31, 2024 consisted of the following:
| As of | As of | |||||||
| January 31, 2025 | October 31, 2024 | |||||||
| Promissory notes, net of discounts | ||||||||
| Note Payable, related party | ||||||||
| Total Notes payable | $ | $ | ||||||
March 2024 Debt Financing
The
Company executed a Securities Purchase Agreement, dated March 27, 2024 (the “SPA”) with an institutional investor (the “March
2024 Investor”), which March 2024 Investor signed and funded on April 5, 2024, and pursuant to which the Company raised gross proceeds
of $
In
connection with the March 2024 Debt Financing, the Company issued an unsecured promissory note to the March 2024 Investor, dated March
27, 2024, in the principal amount of $
On
September 30, 2024, October 30, 2024 and November 30, 2024, the Company made cash payments in the amounts of $
Note Payable – Related Party
On
March 26, 2024, the Company borrowed $
On
September 26, 2024 and October 28, 2024, the Company entered into the first and second amendments, respectively, to the Peterson Note;
each amendment extended the maturity dates to October 28, 2024 and November 30, 2024, respectively, and added a $
June 2024 Convertible Debt Financings
On
June 27, 2024, the Company entered into a securities purchase agreement (the “June 2024 SPA”) with the same April 2024 Investors
(the “June 2024 Investors”). Pursuant to the terms and conditions of the June 2024 SPA, each June 2024 Investor provided
financing of $
| 18 |
Commencing
on the 90th day following the original issue date of the June 2024 Notes, the Company is required to pay to the June 2024
Investors the outstanding principal balance under the June 2024 Notes in monthly installments, on such date and each one (1) month anniversary
thereof, in an amount equal to
The
Company may repay all or any portion of the outstanding principal amount of the June 2024 Notes, subject to a
On
September 26, 2024, October 1, 2024, and October 30, 2024, the Company made principal payments towards the June 2024 Notes in the amounts
of $
On
December 2, 2024, December 20, 2024 and January 7, 2025, the Company made principal payments in the amounts of $
August 1, 2024 Financing
On
August 1, 2024, the Company entered into a Securities Purchase Agreement (the “August 1st SPA”) with an investor,
pursuant to which the Company raised gross proceeds of $
On
January 30, 2025, the Company made a principal payment of $
August 6, 2024 Financing
On
August 6, 2024, the Company entered into a Securities Purchase Agreement (the “August 6th SPA”) with an investor,
pursuant to which the Company raised gross proceeds of $
Additionally,
in conjunction with two prior investors and the April 2024 Debt Financing, the Company will make two payments of $
As
of January 31, 2025, the balance of the August 6, 2024 Financing was $
| 19 |
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Shares
On
November 14, 2024, the
The Reverse Stock Split became effective as of 4:30 p.m., Eastern Time, on November 14, 2024, and the Company’s common stock began trading on a split-adjusted basis when the market opened on November 15, 2024.
On December 5, 2024, the Company issued common shares to allow for the round-up shares for beneficial owners as a result of the reverse stock split which occurred on November 14, 2024.
On
December 20, 2024, the Company issued common shares in lieu of cash for principal payments towards the June 2024 Notes; such payments
were converted into shares at
On
January 1, 2025, the Company entered into a consulting agreement with Redwood Empire Financial Communications, LLC for investor communications
services; the agreement includes monthly compensation of $
As of January 31, 2025, common shares that the Company had previously awarded and begun to recognize stock-based compensation for but were not issued due to a lack of shares available for issuance under the Plan, were issued.
For
the three months ended January 31, 2025, the Company issued shares in connection with an At the Market (“ATM”)
Agreement signed with Spartan Capital Securities, LLC. (“Spartan”) in which the Company issued and sold shares of its common
stock for a total offering price of up to $
Warrants
A summary of the warrant activity during the three months ended January 31, 2025 is presented below:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Number of | Average Exercise | Remaining Life | ||||||||||||||
| Warrants | Price | in Years | Intrinsic Value | |||||||||||||
| Outstanding November 1, 2024 | $ | $ | ||||||||||||||
| Expired | ( |
) | - | - | ||||||||||||
| Outstanding, January 31, 2025 | $ | $ | ||||||||||||||
| Exercisable, January 31, 2025 | $ | $ | ||||||||||||||
A summary of the warrant activity during the three months ended January 31, 2024 is presented below:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Number of | Average Exercise | Remaining Life | ||||||||||||||
| Warrants | Price | in Years | Intrinsic Value | |||||||||||||
| Outstanding November 1, 2023 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Outstanding, January 31, 2024 | $ | $ | ||||||||||||||
| Exercisable, January 31, 2024 | $ | $ | ||||||||||||||
| 20 |
A summary of outstanding and exercisable warrants as of January 31, 2025 is presented below:
| Warrants Outstanding | Warrants Exercisable | |||||||||||||
Exercise Price |
Number of Shares |
Weighted Average Life in Years |
Number of Shares |
|||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
Stock Options
A summary of the option activity during the three months ended January 31, 2025 is presented below:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value | |||||||||||||
| Outstanding, November 1, 2024 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Outstanding, January 31, 2025 | $ | $ | ||||||||||||||
| Exercisable, January 31, 2025 | $ | $ | ||||||||||||||
A summary of the option activity during the three months ended January 31, 2024 is presented below:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value | |||||||||||||
| Outstanding, November 1, 2023 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Outstanding, January 31, 2024 | $ | $ | ||||||||||||||
| Exercisable, January 31, 2024 | $ | $ | ||||||||||||||
| 21 |
| Options Outstanding | Options Exercisable | |||||||||||||
| Exercise Price | Number of Shares | Weighted
Average Remaining Life in Years |
Number of Shares | |||||||||||
| $ | ||||||||||||||
On August 15, 2023, the Company issued five-year options to purchase shares of the Company’s common stock to a consultant of the Company, pursuant to the Plan. The options have an exercise price of $ per share and vest monthly over a period of months, beginning on the vesting commencement date. The options have a grant date fair value of $, which will be recognized over the vesting term.
| Risk free interest rate | % | |||
| Expected term (years) | ||||
| Expected volatility | % | |||
| Expected dividends rate | % |
NOTE 11 – SUBSEQUENT EVENTS
In accordance with ASC 855 – Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after January 31, 2025, through the date the financial statements were issued. Except for the following, there are no subsequent events identified that would require disclosure in the financial statements.
On
January 28, 2025, the Company entered into a Note Exchange Agreement, whereby it and the investor in the August 6th
Financing agreed to exchange the outstanding balance of $
| 22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q, as well as our audited financial statements and related notes as disclosed in our Form 10-K/A for the year ended October 31, 2024 (“our Form 10-K/A”). This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those in this Quarterly Report on Form 10-Q, as well as the risk factors set forth in the section titled “Risk Factors” included in our Form 10-K/A, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.
Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Trio Petroleum Corp.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Risks, risk factors and uncertainties involved in forward-looking statements contained in this Form 10-Q include, but are not limited to, the following:
| ● | our ability to find, acquire or gain access to other properties, discoveries and prospects and to successfully develop our current properties, discoveries and prospects; | |
| ● | uncertainties inherent in making estimates of our oil and natural gas resources; | |
| ● | the successful implementation of our prospective discovery, development and drilling plans with the South Salinas Project; | |
| ● | projected and targeted capital expenditures and other costs, commitments and revenues; | |
| ● | our dependence on our key management personnel and our ability to attract and retain qualified technical personnel; | |
| ● | the ability to obtain financing and the terms under which such financing may be available; | |
| ● | the volatility of oil and natural gas prices; | |
| ● | the availability and cost of developing appropriate infrastructure around and transportation to our discoveries and prospects; | |
| ● | the availability and cost of drilling rigs, production equipment, supplies, personnel and oilfield services; | |
| ● | other competitive pressures; |
| 23 |
| ● | potential liabilities inherent in oil and natural gas operations, including drilling risks and other operational and environmental hazards; | |
| ● | current and future government regulation of the oil and gas industry; | |
| ● | cost of compliance with laws and regulations; | |
| ● | changes in environmental, health and safety or climate change laws, greenhouse gas regulation or the implementation of those laws and regulations; | |
| ● | environmental liabilities; | |
| ● | geological, technical, drilling and processing problems; | |
| ● | military operations, terrorist acts, wars or embargoes; | |
| ● | the cost and availability of adequate insurance coverage; | |
| ● | our vulnerability to severe weather events; and | |
| ● | other risk factors discussed in the “Risk Factors” section of this Quarterly Report and in our Form 10-K/A. |
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report, whether as a result of any new information, future events or otherwise.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
Overview
We are a California-based oil and gas exploration and development company headquartered in Bakersfield, California, with our principal executive offices located at 5401 Business Park South, Suite 115, Bakersfield, California 93309, with operations in Monterey County, California, and Uintah County, Utah.
We have had revenue-generating operations since the McCool Ranch Oil Field was restarted on February 22, 2024, and recognized our first revenues in our fiscal quarter ended April 30, 2024, and received the proceeds from these operations in June 2024.
We were formed to initially acquire an approximate 82.75% working interest (which was subsequently increased to an approximate 85.775% working interest) from Trio Petroleum LLC (“Trio LLC”) in the large, approximately 9,300-acre South Salinas Project that is located in Monterey County, California, and subsequently partner with certain members of Trio LLC’s management team to develop and operate those assets. We hold an approximate 68.62% interest after the application of royalties (“net revenue interest”) in the South Salinas Project. Trio LLC holds an approximate 3.8% working interest in the South Salinas Project. We and Trio LLC are separate and distinct companies.
California is a significant part of our geographic focus and we recently acquired a 22% working interest in the McCool Ranch Oil Field (the “McCool Ranch Oil Field”, “McCool Ranch Field” or “McCool Ranch”) in Monterey County, California. However, our interests extend beyond California and we recently acquired an interest in the Asphalt Ridge Project in Uintah County, Utah; we may acquire additional assets both inside and outside of California and Utah.
South Salinas Project
Efforts to obtain from Monterey County conditional use permits and a full field development permit for the South Salinas Project are progressing. Efforts to obtain from the California Geologic Energy Management Division (“CalGEM”) and from the California Water Boards a permit for a water disposal project at the South Salinas Project are also progressing. In the meantime, the Company recently determined that existing permits allow production testing to continue at the HV-3A discovery well at Presidents Field and, consequently, testing operations were restarted at this well on March 22, 2024. Oil production from this well has occurred with a generally favorable oil-water ratio and the Company is assessing steps to attempt to increase the well’s gross production rate, for example by adding up to 650 feet of additional perforations in the oil zone and/or acidizing the well for borehole cleanup. First oil sales from the HV-3A well occurred in the third calendar quarter of 2024 but is currently idled.
McCool Ranch Oil Field
On October 16, 2023, we entered into a Purchase and Sale Agreement with Trio LLC (the “McCool Ranch Purchase Agreement”) pertaining to the McCool Ranch Oil Field. Pursuant to this agreement, effective October 1, 2023, we acquired an approximate 22% working interest in and to certain oil and gas assets at the McCool Ranch Field, which is located in Monterey, County, California, just seven miles from our flagship South Salinas Project. The assets are situated in what is known as the “Hangman Hollow Area” of the McCool Ranch Field. The acquired property is a relatively new oil field (discovered in 2011) developed with six oil wells, one water-disposal well, a steam generator, boiler, three 5,000 barrel tanks, a 250-barrel test tank, a water softener, two freshwater tanks, two soft water tanks, in-field steam pipelines, oil pipelines and other facilities. The property is fully and properly permitted for oil and gas production, cyclic-steam injection and water disposal. We are acquiring the working interest at McCool Ranch primarily through work commitment expenditures, which are being allocated to restart production at the field and establish cash flow for us, with upside potential given the numerous undrilled infill and development well locations. Oil production was restarted on February 22, 2024.
McCool Ranch operations have been successfully restarted, including the restarting of oil production at the HH-1, 35X and 58X wells. The HH-1 well has a short horizontal completion in the Lombardi Oil Sand, whereas the 35X and 58X wells are both vertical wells with similar oil columns in the Lombardi Oil Sand and with similar subsurface borehole completions. The HH-1 well at McCool Ranch upon restart was initially producing cold (ie., without steam) about 47 barrels of oil per day before settling down to 10 to 15 bopd combined with the 35X well. Both the HH-1 and 35X wells are currently idled along with the 58X well. The Company is assessing whether to restart cyclic steam operations.
| 24 |
The aforementioned initial three wells at McCool Ranch were each restarted and produced “cold” (i.e. without steam injection), which allows for lower operating costs, with expectation that each would be produced cold as long as profitable. The Company is assessing whether to transition each well from cold to cyclic-steam production, also known as “huff and puff,” which is expected to significantly increase production. The wells at McCool Ranch historically have responded favorably when cyclic-steam operations have been applied.
The Company is assessing the viability of restarting the last two wells in the restart program, the HH-3 and HH-4 wells. The HH-3 and HH-4 wells will have horizontal completions similar to but longer than that of the HH-1 well. All water produced from these wells will be disposed in the on-site water disposal well.
The HH-1 well was initially produced cold for about 380 days in 2012-2013, during which time peak production was about 156 barrels of oil per day (“BOPD”), average production was about 35 BOPD and cumulative production was about 13,147 barrels of oil (“BO”). The 58X well was initially produced cold for about 230 days in 2011-2013, during which time peak production was about 41 BOPD, average production was about 13 BOPD and cumulative production was about 2,918 BO.
KLS Petroleum Consulting LLC (“KLSP”), a third-party, independent engineering firm, recommends that McCool Ranch be developed with horizontal wells, each landed in the Lombardi Oil Sand with a 1,000-foot lateral. Management estimates that TPET’s property can probably accommodate approximately 22 additional horizontal wells and TPET accordingly may commence a drilling program in 2025. TPET expects to add the reserve value of the McCool Ranch Field to the Company’s reserve report after a further period of observation and review of the oil production that was restarted on February 22, 2024.
Asphalt Ridge Option Agreement and the Lafayette Energy Leasehold Acquisition and Development Option Agreement
On November 10, 2023, TPET entered into a Leasehold Acquisition and Development Option Agreement (the “Asphalt Ridge Option Agreement”) with Heavy Sweet Oil LLC (“HSO”). Pursuant to the Asphalt Ridge Option Agreement, the Company acquired an option to purchase up to a 20% working interest in certain leases at a long-recognized, major oil accumulation in northeastern Utah, in Uintah County, southwest of the city of Vernal, including an initial 960 acres and a subsequent 1,920 acres, as well as a right-of-refusal option on approximately 30,000 acres. HSO holds the right to such leases below 500 feet depth from surface and the Company acquired the option to participate in HSO’s initial 960 acre and subsequent 1,920 acre drilling and production programs (the “HSO Program”) on such Asphalt Ridge Leases. TPET also holds the right of first refusal to participate with up to a 20% working interest on the greater approximate 30,000 acre leasehold at terms offered to other third-parties. On December 29, 2023, the Company and HSO entered into an Amendment to Leasehold Acquisition and Development Agreement (the “Amendment to the Asphalt Ridge Option Agreement”), pursuant to which the Company and HSO amended the Asphalt Ridge Option Agreement to provide that, within three (3) business days of the effective date of the Amendment to the Asphalt Ridge Option Agreement, the Company would fund $200,000 of the $2,000,000 total purchase price in advance of HSO satisfying the closing conditions set forth in the Asphalt Ridge Option Agreement, in exchange for the Company receiving an immediate 2% interest in the initial 960 acres, which advanced funds would be used solely for the building of roads and related infrastructure in furtherance of the development plan. In January 2024, the Company funded an additional $25,000 resulting in a 2.25% working interest in the initial 960 acres.
The Asphalt Ridge Project, according to J. Wallace Gwynn of Energy News, is estimated to be the largest measured tar sand resource in the United States and is unique given its low wax and negligible sulfur content, which is expected to make the oil produced very desirable for many industries, including shipping.
Asphalt Ridge is a prominent, northwest-southeast trending topographic feature (i.e., a dipping slope called a hog’s back or cuesta) that crops-out along the northeast flank of the Uintah Basin. The outcrop is comprised largely of Tertiary and Cretaceous age sandstones that are locally highly saturated with heavy oil and/or tar. Deposits and reserves located in the Uintah Basin are described in a report published in October 1985 by the United States Department of Energy’s Laramie Energy Technology Center (the “LETC”) titled In Situ Recovery of Oil from Utah Tar Sand: A Summary of Tar Sand Research at the Laramie Energy Technology Center, by L.C. Marchant and J.D. Westhoff (the “LETC Report”), covering work done by the LETC from 1971 to 1982, which was concentrated on major U.S. tar and sand deposits found in Utah. In the LETC Report, it provides that the location of individual deposits and extent of reserves have been identified by H.R. Ritzma, who was formerly with the Utah Geological and Mineralogical Survey, to contain an estimated 20 billion barrels of bitumen (oil) in the Utah tar sands, an estimated 10.8 billion barrels of which are contained in the Uintah Basin deposits, principally Asphalt Ridge (the site of the Asphalt Ridge Development Project), Hill Creek, Sunnyside and P.R. Spring. The project leasehold comprises over 30,000 acres and trends northwest-southeast, along the trend of Asphalt Ridge, over a distance of about 20 miles.
The area has been underdeveloped for decades due, in large part, to lease ownership issues and the definition of heavy oil falling under mining regulations in the State of Utah. These factors created conflict between surface rights and subsurface mineral rights and were obstacles to developing the asset using proven advanced cyclic-steam production techniques. Necessary permits have now been secured that should allow drilling to commence by our operating partner. HSO hopes to continue to work with the State of Utah to supplement prior receipt of permits with other state incentives, including working with the State on an arrangement requiring only an 8% state royalty in connection with this project.
An early development phase contemplates the development of 240 acres with an estimated 119 wells in the Northwest Asphalt Ridge Area. The plan is to develop the 240 acres using advanced cyclic-steam production techniques, including initial CO2 injection. This phase contemplates seventeen 7-spot hexagonal well patterns on 2 ½ acre spacing (a 7-spot has a central steam/CO2 injection well that is surrounded by six producing oil wells). Upgrades have been made to existing roads and well pads as part of this early development phase.
Two oil-saturated Cretaceous sandstones are targeted for development at Asphalt Ridge: the Rimrock Sandstone and the underlying Asphalt Ridge Sandstone. We expect to add the reserve value, if any, of the Asphalt Ridge Project to the Company’s reserve report after a brief period of observation and review of the oil development operations that commenced in the third calendar quarter of 2024.
During the quarterly period ended April 30, 2024, we announced the commencement of drilling activities at Asphalt Ridge. The first well, HSO 8-4 (API# 4304757202), was spud on May 10, 2024 and drilled to a total depth of 1,020 feet. The well found 100 feet of Rimrock Sandstone tar-sand pay zone with good oil saturation and good porosity and thirty feet of the Rimrock was cored. A small, representative piece of Rimrock core was placed in water and brought to boiling point, and within a few minutes the sand disaggregated and the bitumen became liquid, mobile-oil, floating on top of the water – this simple laboratory test indicates that the bitumen becomes mobile-oil at relatively low temperatures and supports our contention that oil extraction using subsurface thermal-recovery methods may be very successful. A second well, the HSO 2-4 (API# 430475201), was spud on May 19, 2024 and drilled to a total depth of 1,390 feet. The well drilled through both the Rimrock tar-sand, which had a thickness of 135 feet, and the Asphalt Ridge tar-sand, which had a thickness of 59 feet. Oil production has commenced using downhole heaters, whereas the operator plans to transition to production using advanced cyclic-steam and steam-drive methods.
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Carbon Capture and Storage Project as part of Company’s South Salinas Project
We are committed to attempting to reduce our own carbon footprint and, where possible, that of others. For this reason, we are taking initial steps to launch a Carbon Capture and Storage (“CCS”) project as part of the South Salinas Project, which appears ideal for such a task. The South Salinas Project covers a vast area and is uniquely situated at a deep depocenter where there are thick geologic zones (e.g., Vaqueros Sand, up to approximately 500’ thick) about two miles deep, which could accommodate and permanently store vast volumes of CO2. Four existing deep wells in the South Salinas Project (i.e., the HV 1-35, BM 2-2, BM 1-2-RD1 and HV 3-6 wells) are excellent candidates for use as CO2 injection wells. A CCS project in the future may help reduce our carbon footprint by sequestering and permanently storing CO2 deep underground at one or more deep wells, away from drinking water sources. Furthermore, three of the aforementioned deep wells are directly located on three idle oil and gas pipelines that could be used to import CO2 to our CCS Project. We have opened discussions with third parties who wish to reduce their own greenhouse gas emissions and who may be interested in participating in our CCS project. We believe it is feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub.
Going Concern Considerations
We have only begun to generate revenues in the current fiscal year and have incurred significant losses since inception. As of January 31, 2025, we have an accumulated deficit of $21,689,204 and working capital of $547,056, and for the year ended January 31, 2025, a net loss of $1,615,525 and cash used in operating activities of $920,485. To date, we have been funding operations through proceeds from the issuance of common stock, financing through certain investors, the consummation of our IPO in April 2023, and convertible note financing under two tranches in October 2023 and December 2023, pursuant to which we raised total gross proceeds of $2,371,500. Additionally, we received funds in the amount of $125,000 from an unsecured promissory note from our CEO, gross proceeds of $184,500 from a promissory note with an investor in March 2024, gross proceeds of $720,000 from convertible debt financing with two investors in April 2024, gross proceeds of $720,000 from convertible debt financing with two investors in June 2024, as well as additional financing secured after the end of the period in August 2024 for gross proceeds in the aggregate amount of $359,000 from two unsecured promissory notes, as well as proceeds of approximately $4,650,000 in connection with an “at-the-market” agreement entered into in September 2024.
There is substantial doubt regarding our ability to continue as a going concern as a result of our accumulated deficit and no source of revenue sufficient to cover our costs of operations as well as our dependence on private equity and financing.
The accompanying condensed financial statements have been prepared assuming we will continue as a going concern. As we have only begun to generate revenues, we need to raise a significant amount of capital to pay for our development, exploration, drilling and operating costs. While we raised capital in April 2023 with our IPO, in October 2023, December 2023, April 2024 and June 2024 with convertible debt financing, in March 2024 and August 2024 with promissory notes and in September 2024 with an ATM agreement, we expect to require additional funding in the future and there is no assurance that we will be able to raise additional needed capital or that such capital will be available under favorable terms or at all. We are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. We may never achieve profitable operations or generate significant revenues.
We will require additional capital funding in order to drill additional planned wells at the South Salinas, McCool Ranch and Asphalt Ridge assets and to pay for additional development costs and other payment obligations and operating costs until our planned revenue streams are fully implemented and begin to offset our operating costs, if ever.
Since our inception, we have funded our operations with the proceeds from equity and debt financing. We have experienced liquidity issues due to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the issuance of equity and promissory notes that are convertible into shares of our common stock to fund our operations and have devoted significant efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations for the foreseeable future. If we are unable to achieve operational profitability or are not successful in securing other forms of financing, we will have to evaluate alternative actions to reduce our operating expenses and conserve cash.
The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern. The financial statements included in this report also include a going concern footnote (see Note 3).
Optioned Assets - McCool Ranch Oil Field
In October 2023, we entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for the purchase of a 21.918315% working interest in the McCool Ranch Oil Field located in Monterey County near our flagship South Salinas Project; we initially recorded a payment of $100,000 upon the execution of the McCool Ranch Purchase Agreement, at which time Trio LLC began refurbishment operations with respect to the San Ardo WD-1 water disposal well (the “WD-1”) to determine if it was capable of reasonably serving the produced water needs for the assets. With refurbishment successfully accomplished, we will pay an additional $400,000 per the McCool Ranch Purchase Agreement; to date, operations have been successfully restarted at three wells, and we expect to restart the last two wells in the restart program during the calendar quarter ending September 30, 2024. As of January 31, 2025, we have paid approximately $344,000 during the year for restarting production operations on the assets and have a liability recorded of approximately $56,000 to Trio LLC as of January 31, 2025.
Optioned Assets – Asphalt Ridge Leasehold Acquisition & Development Option Agreement
On November 10, 2023, we entered into a leasehold acquisition and development option agreement (“ARLO Agreement”) with Heavy Sweet Oil, LLC (“HSO”) for a term of nine months, which gives the Company the exclusive right to acquire up to a 20% interest in a 960 acre drilling and production program in the Asphalt Ridge leases for $2,000,000, which may be invested in tranches by us, with an initial tranche closing for an amount no less than $500,000 and paid within seven days subsequent to HSO providing certain required items to the Company.
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On December 29, 2023, we entered into an amendment to the ARLO Agreement, whereby we funded $200,000 of the $500,000 payable by us to HSO at the Initial Closing, in advance of HSO satisfying certain required items for a 2% interest in the leases; such funds are to be used by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. During the quarterly period ended April 30, 2024, we announced the commencement of drilling activities at Asphalt Ridge and two wells (the HSO 8-4 and the HSO 2-4) were spud during May 2024.
We have until April 10, 2025 to pay HSO an additional $1,775,000 to exercise an option for the remaining 17.75% working interest in the initial 960 acres of the Asphalt Ridge Leases; if this option is not exercised on or before such date, we will forfeit any further right to acquire this additional 17.75% working interest in the initial 960 acres. As of January 31, 2025, we have paid a total of $225,000 to HSO in costs related to infrastructure and have a 2.25% interest in the leases; such costs are capitalized costs and are reflected in the balance of the oil and gas property as of January 31, 2025.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Results of Operations
Three Months Ended January 31, 2025 compared to the Three Months Ended January 31, 2024 (unaudited)
Our financial results for the three months ended January 31, 2025 and 2024 are summarized as follows:
| For the Three Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | % Change | |||||||||||||
| Revenues, net | $ | 10,819 | $ | - | $ | 10,819 | NM | |||||||||
| Operating expenses: | ||||||||||||||||
| Exploration expenses | $ | 24,721 | $ | 84,954 | $ | (59,873 | ) | (70.8 | )% | |||||||
| General and administrative expenses | 711,546 | 957,690 | (246,144 | ) | (25.7 | )% | ||||||||||
| Stock-based compensation expense | 490,314 | 407,618 | 82,696 | 20.3 | % | |||||||||||
| Accretion expenses | 695 | 695 | - | 0.0 | % | |||||||||||
| Total operating expenses | 1,227,276 | 1,450,597 | (223,321 | ) | (15.4 | )% | ||||||||||
| Loss from Operations | (1,216,457 | ) | (1,450,597 | ) | 234,140 | (16.1 | )% | |||||||||
| Other expenses: | ||||||||||||||||
| Interest expenses | 318,366 | 159,298 | 159,068 | 99.9 | % | |||||||||||
| Loss on note conversion | 80,702 | 92,153 | (11,451 | ) | (12.4 | )% | ||||||||||
| Total other expenses | 399,068 | 251,451 | 147,617 | 58.7 | % | |||||||||||
| Loss before income taxes | (1,615,525 | ) | (1,702,048 | ) | 86,523 | (5.1 | )% | |||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| Net loss | $ | (1,615,525 | ) | $ | (1,702,048 | ) | $ | 86,523 | (5.1 | )% | ||||||
Revenues, net
Revenues, net increased for the three months ended January 31, 2025 by approximately $0.1 million as compared to the prior period, which had no revenue; we sold and shipped approximately 180 barrels of oil produced from the HH-1 and the 35X wells.
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Exploration expenses
Under the successful efforts method of accounting for crude oil and natural gas properties, exploration expenses consist primarily of exploratory, geological and geophysical costs, delay rentals and exploratory overhead, and are expensed as incurred. Exploration expenses decreased by approximately $0.1 million as compared to the prior year period due to a decrease in exploratory, geological, and geophysical costs incurred during the period.
General and administrative expenses
General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expenses also include corporate facility costs including rent, utilities, depreciation, amortization and maintenance, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.
General and administrative expenses decreased for the three months ended January 31, 2025 by approximately $0.3 million as compared to the prior period due to decreases in salary expenses and legal fees of approximately $175,000 and $80,000, respectively.
Stock-based compensation expense
We record stock-based compensation expenses for costs associated with options and restricted shares granted in connection with the Plan, as well as for shares issued as payment for services. Stock-based compensation expense increased by approximately $0.1 million for the year ended January 31, 2025 due to the amortization of 260,000 options issued in the current twelve month period; such had not yet been granted during the same period in the prior year.
Accretion expenses
We have an Asset Retirement Obligation (“ARO”) recorded that is associated with its oil and natural gas properties in the SSP; the fair value of the ARO was recorded as a liability and is accreted over time until the date the ARO is to be paid. For the three months ended January 31, 2025, accretion expenses remained consistent with that of the prior year period.
Other expenses, net
For the three months ended January 31, 2025, other expenses, net increased by approximately $0.2 million when compared to the prior year period. The increase is attributable to an increase in non-cash interest expense of $0.2 million, which is recognized as debt discounts on financings are amortized; there were less financings in the prior period.
Liquidity and Capital Resources
Working Capital/(Deficiency)
Our working capital as of January 31, 2025, in comparison to our working capital deficiency as of October 31, 2024, can be summarized as follows:
| January 31, 2025 | October 31, 2024 | |||||||
| Current assets | $ | 2,015,019 | $ | 565,219 | ||||
| Current liabilities | 1,467,963 | 2,590,699 | ||||||
| Working capital (deficiency) | $ | 547,056 | $ | (2,025,480 | ) | |||
Current assets increased because of i) an increase to the cash account of approximately $1.7 million due to cash proceeds from the sale of shares related to the ATM agreement. Current liabilities decreased because of i) a decrease in promissory notes of approximately $0.4 million, ii) a decrease in notes payable-related parties of $0.1 million and iii) a decrease in other current liabilities of approximately $0.4 million.
Cash Flows
Our cash flows for the three months ended January 31, 2025, in comparison to our cash flows for the three months ended January 31, 2024, can be summarized as follows:
| Three months ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (920,485 | ) | $ | (774,431 | ) | ||
| Net cash used in investing activities | (160,779 | ) | (522,767 | ) | ||||
| Net cash provided by financing activities | 2,756,520 | 84,022 | ||||||
| Net change in cash | $ | 1,675,256 | $ | (1,213,176 | ) | |||
Cash Flows from Operating Activities
For the three months ended January 31, 2025 and 2024, cash used in operating activities was $920,485 and $774,431, respectively. The cash used in operations for the three months ended January 31, 2025 was primarily attributable to our net loss of $1,615,525, adjusted for non-cash expenses in the aggregate amount of $887,818, as well as $192,778 of net cash used to fund changes in the levels of operating assets and liabilities. The cash used in operations for the three months ended January 31, 2024 was primarily attributable to our net loss of $1,702,048, adjusted for non-cash expenses in the aggregate amount of $968,993, as well as $41,376 of net cash used to fund changes in the levels of operating assets and liabilities.
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Cash Flows from Investing Activities
For the three months ended January 31, 2025 and 2024, cash used in investing activities was $160,779 and $522,767, respectively. The cash used during the three months ended January 31, 2025 is attributable to approximately $0.1 million related to costs for capital expenditures, which were capitalized and reflected in the balance of the oil and gas property as of January 31, 2025, and $0.1 million in amounts due to operators. The cash used during the three months ended January 31, 2024 was attributable to approximately $0.3 million related to drilling exploratory wells and approximately $0.6 million related to acquisition costs, both of which were capitalized and reflected in the balance of the oil and gas property as of January 31, 2024. These amounts were offset by approximately $400,000 in amounts due to operators and related parties for costs for the South Salinas Project and the McCool Ranch Option.
Cash Flows from Financing Activities
For the three months ended January 31, 2025 and 2024, cash provided by financing activities was $2,756,520 and $84,022, respectively. Cash provided by financing activities during the three months ended January 31, 2025 was primarily attributable to approximately $3.5 million in net proceeds from the issuance of common shares in connection with an ATM agreement, offset by payments for related party debt and promissory notes of approximately $0.2 million and $0.5 million, respectively. Cash provided by financing activities during the three months ended January 31, 2024 was primarily attributable to approximately $0.5 million in net proceeds from the issuance of convertible debt, offset by payments for the convertible debt in the amount of approximately $0.4 million.
The Company’s cash change was an increase of approximately $1.6 million as of January 31, 2025. Management believes that the cash on hand and working capital are sufficient to meet its current anticipated cash requirements for anticipated capital expenditures and operating expenses for the next twelve months.
Contractual Obligations and Commitments
Unproved Property Leases
We hold various leases related to the unproved properties of the South Salinas Project; two of the leases are held with the same lessor. The first lease, which covers 8,417 acres, was amended on May 27, 2022 to provide for an extension of then-current force majeure status for an additional, uncontested twelve months, during which we would be released from having to evidence to the lessor the existence of force majeure conditions. As consideration for the granting of the lease extension, we paid the lessor a one-time, non-refundable payment of $252,512; this amount was capitalized and reflected in the balance of the oil and gas property as of October 31, 2022. The extension period commenced on June 19, 2022 and currently, the “force majeure” status has been extinguished by the drilling of the HV-1 well. The ongoing operation and oil production at the HV-3A well maintain the validity of the lease.
The second lease covers 160 acres of the South Salinas Project; it is currently held by delay rental and is renewed every three years. Until drilling commences, we are required to make delay rental payments of $30/acre per year. We are currently in compliance with this requirement and have paid in advance the delay rental payment for the period from October 2024 through October 2025.
We hold interests in various leases related to the unproved properties of the McCool Ranch Oil Field. These leases occur in two parcels, “Parcel 1” and “Parcel 2”. Parcel 1 comprises ten leases and approximately 480 acres, which are held by delay rental payments that are paid-up and current. Parcel 2 comprises one lease and approximately 320 acres, which is held by production. The total leasehold comprises approximately 800 gross and net acres.
During February and March of 2023, we entered into additional leases related to the unproved properties of the South Salinas Project with two groups of lessors. The first group of leases covers 360 acres and has a term of 20 years; we are required to make rental payments of $25/acre per year. We are currently in compliance with this requirement and have paid in advance the rental payment for the period February 2025 through February 2026. The second group of leases covers 307.75 acres and has a term of 20 years; we are required to make rental payments of $30/acre per year. We are currently in compliance with this requirement and have paid in advance the rental payment for the period from March 2025 through March 2026.
On November 10, 2023, we entered into the ARLO Agreement with HSO for a term of nine months which allows us the exclusive right to acquire up to a 20% interest in a 960 acre drilling and production program in the Asphalt Ridge leases for $2,000,000, which may be invested in tranches, with an initial tranche closing for an amount no less than $500,000 and paid within seven days subsequent to HSO providing certain required items to us.
On December 29, 2023, we entered into an amendment to the ARLO Agreement, whereby we funded $200,000 of the $500,000 payable by us to HSO at the Initial Closing, in advance of HSO satisfying certain required items for a 2% interest in the leases; such funds are to be used by HSO solely for the building of roads and related infrastructure in furtherance of the development of the leases. As of January 31, 2025, we have paid a total of $225,000 to HSO in costs related to infrastructure and has obtained a 2.25% interest in the leases; such costs are capitalized costs and are reflected in the balance of the oil and gas property as of January 31, 2025.
Board of Directors Compensation
On July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company, which would be effective upon the consummation of the IPO. Such compensation is structured as follows: an annual retainer of $50,000 cash plus an additional $10,000 for each Board committee upon which the Director serves, each paid quarterly in arrears. Payment for this approved compensation commenced upon successful completion of the Company’s IPO in April 2023; for the three months ended January 31, 2025 and 2024, the Company has recognized $59,167 and $56,685, respectively, in directors’ fees.
Agreements with Advisors
On October 4, 2023 and December 29, 2023, the Company entered into placement agent agreements with Spartan Capital Securities, LLC (“Spartan”), whereby Spartan has served as the exclusive placement agent in connection with the closing of private placements. The agreements provide the agent with i) a cash fee 7.5% of the aggregate proceeds raised in the sale and ii) warrants to purchase a number of common shares equal to 5% of the number of common shares initially issuable upon conversion of each note tranche; warrants to purchase 4,167 and 2,750 common shares with exercise prices of $26.40 and $11.00 for the first and second tranches, respectively, were issued to Spartan as of January 31, 2024. Such warrants may be exercised beginning 6 months after issuance until four and one-half years thereafter.
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Critical Accounting Policies and Estimates
Basis of Presentation
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the condensed financial statements are prepared, and actual results could differ from our estimates and such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our condensed financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the most significant policies we apply in preparing our condensed financial statements, some of which are subject to alternative treatments under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 2 - Summary of Significant Accounting Policies” to our financial statements.
Oil and Gas Assets and Exploration Costs – Successful Efforts
Our projects are in exploration and/or early production stages and we began generating revenue from its operations during the quarterly period ended April 30, 2024. We apply the successful efforts method of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence to justify potential development of reserves, drilling costs associated with the property are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory property costs considering ongoing exploration activities; in particular, whether we are making sufficient progress in our ongoing exploration and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to occur, associated exploratory well costs are expensed.
Costs to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment, based on our current exploration plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field basis, as estimated by qualified petroleum engineers. We currently have four wells that are producing (one well in President’s Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and are evaluating the impact of production on the reserve determination for those wells and fields. We expect to add the reserve value of such fields to our reserve report after a further period of observation and review of oil production.
Unproved oil and natural gas properties
Unproved oil and natural gas properties have unproved lease acquisition costs, which are capitalized until the lease expires or otherwise until we specifically identify a lease that will revert to the lessor, at which time we charge the associated unproved lease acquisition costs to exploration costs.
Unproved oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. We currently have four wells that are producing (one well in President’s Field in the South Salinas Project and three wells at the McCool Ranch Oil Field) and are evaluating the impact of production on the reserve determination for those wells and fields. We expect to add the reserve value of such fields to our reserve report after a further period of observation and review of the oil production. As of January 31, 2025 and October 31, 2024, all of our oil and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization.
Impairment of Other Long-lived Assets
We review the carrying value of our long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. We assess the recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to proved properties; unproved properties are assessed for impairment either at an individual property basis or a group basis.
Asset Retirement Obligations
ARO consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project acquisition described above, we acquired the plugging and abandonment liabilities associated with six temporarily shut-in, idle wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase in the carrying amount of oil and natural gas properties. We plan to utilize the six wellbores acquired in the South Salinas Project acquisition in future production, development and/or exploration activities. The liability is accreted for the change in its present value each period based on the expected dates that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
Recent Accounting Pronouncements
All recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to us.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our first fiscal quarter ended January 31, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any legal proceedings.
Item 1A. Risk Factors
There have been no other material changes to the risk factors set forth in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended October 31, 2024, which was filed with the SEC on January 17, 2025 (“2024 Annual Report”). Our business involves significant risks. You should carefully consider the risks and uncertainties described in our 2024 Annual Report, together with all of the other information in our 2024 Annual Report and in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes as disclosed in our Amendment No. 2 to Annual Report on Form 10-K/A filed with the SEC on February 27, 2025.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None, except as reported on Current Reports on Form 8-K filed by the Company during the quarterly period covered by this report.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) Insider Trading Arrangements
Trading Plans
On January 22, 2025, Robin Ross, the Chief Executive Officer and Director of the Company, entered into a 10b5-1 sales plan (the “Ross 10b-5 Sales Plan”) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Ross 10b-5 Sales Plan provides for the sale of up to 150,000 shares of common stock and will remain in effect until the earlier of (1) July 22, 2026; or (2) the date on which an aggregate of 150,000 shares of common stock have been sold under the Ross 10b5 Sales Plan. As of the date of this Report, none of the shares were sold and no other adjustments were made to the plan during the quarterly period covered by this report.
No
other directors or executive officers of the Company
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
| ** | Furnished, not filed |
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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.
| TRIO PETROLEUM CORP. | ||
| By: | /s/ Robin Ross | |
| Robin Ross | ||
| Chief Executive Officer (Principal Executive Officer) |
||
| Date: March 14, 2025 | ||
| By: | /s/ Greg Overholtzer | |
| Greg Overholtzer | ||
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
||
| Date: March 14, 2025 |
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