Business Overview and History

Trio Petroleum Corp (TPET) is a California-based oil and gas exploration and development company that has been steadily expanding its operations and asset portfolio in recent years. Founded in 2021, the company has quickly established a presence in key regions, including Monterey County, California, and Uintah County, Utah, where it has made notable strides in unlocking the value of its diverse asset base.

Trio Petroleum Corp. was incorporated on July 19, 2021, under the laws of Delaware with the purpose of acquiring, funding, and operating oil and gas exploration, development, and production projects. The company's initial focus was on acquiring an 82.75% working interest in the South Salinas Project, a large approximately 9,300-acre asset located in Monterey County, California. This interest was subsequently increased to 85.78%.

In September 2021, Trio Petroleum entered into a Purchase and Sale Agreement with Trio LLC to acquire the South Salinas Project's leases, wells, and inventory. The transaction was completed in exchange for cash, a non-interest-bearing note payable, and 4.9 million shares of the company's common stock. Following this acquisition, Trio Petroleum holds an approximate 68.62% interest in the South Salinas Project after the application of royalties, while Trio LLC retains an approximate 3.8% working interest.

The company achieved a significant milestone with its Initial Public Offering (IPO) on April 17, 2023. The IPO closed on April 20, 2023, with Trio Petroleum selling 2 million shares of common stock for gross proceeds of $6 million. This capital injection provided the company with additional funds to support its operations and development plans.

In October 2023, Trio Petroleum further expanded its portfolio by entering into an agreement with Trio LLC to purchase a 21.92% working interest in the McCool Ranch Oil Field, also located in Monterey County, California. The company made an initial payment of $100,000 upon execution of the agreement, at which time Trio LLC began refurbishment operations on the San Ardo WD-1 water disposal well. With the successful completion of the refurbishment, Trio Petroleum is obligated to pay an additional $400,000 as per the agreement.

Despite its growth, Trio Petroleum has faced some challenges. In February 2024, the company received written notice from the NYSE American indicating non-compliance with the continued listing standard set forth in Section 1003(f)(v) of the NYSE American Company Guide due to the company's shares trading at a low price for a substantial period. This resulted in the company's shares trading with a ".BC" designation. However, Trio Petroleum was able to regain compliance with the NYSE American listing requirements in May 2024, thanks to sustained price improvement of its shares.

Trio Petroleum Corp. is headquartered in Bakersfield, California. The company has faced no major scandals, short seller reports, or CEO departures. However, there is substantial doubt about the company's ability to continue as a going concern due to its accumulated deficit and dependence on private equity and financing to fund operations. The company's auditor has included an explanatory paragraph relating to its ability to continue as a going concern in its audit report.

Financial Performance and Ratios

As an emerging oil and gas exploration and development company, Trio Petroleum has recently started generating revenue. For the fiscal year ended October 31, 2023, the company reported no revenue and a net loss of $6.54 million. Operating cash flow (OCF) for the same period was -$4.04 million, while free cash flow (FCF) stood at -$4.40 million.

In the most recent quarter ended July 31, 2024, Trio Petroleum reported revenue of $63,052, marking a significant milestone as the company began generating revenue from its operations during the quarterly period ended April 30, 2024. This represents a 100% year-over-year increase in revenue. However, the company still faced a net loss of $2,178,571 for the quarter. Operating cash flow (OCF) for the quarter was -$563,883, and free cash flow (FCF) was -$638,495. The net loss, OCF, and FCF all worsened compared to the prior year quarter due to increased operating expenses and interest costs related to financing activities.

As of July 31, 2024, Trio Petroleum had total assets of $11.70 million, with $11.08 million attributed to oil and gas properties not subject to amortization. The company's total liabilities stood at $3.64 million, resulting in a debt-to-equity ratio of 0.45.

Trio Petroleum's liquidity position has been a concern, with a current ratio of 0.17 and a quick ratio of 0.17 as of July 31, 2024. The company's working capital deficit of $2.97 million and accumulated deficit of $18.37 million raise substantial doubt about its ability to continue as a going concern.

The company does not provide geographic segment reporting, as it currently only operates in the United States.

Liquidity

Trio Petroleum's liquidity position remains a significant concern for the company. The working capital deficit of $2.97 million and the accumulated deficit of $18.37 million highlight the challenges the company faces in maintaining sufficient liquidity to fund its operations and development plans. The current ratio and quick ratio of 0.17 indicate that the company may struggle to meet its short-term obligations with its current assets.

As of July 31, 2024, Trio Petroleum had a cash balance of $293,110. The company has no available credit lines or facilities disclosed. The debt-to-equity ratio stood at 0.19528518591099986, reflecting a relatively low level of debt compared to equity.

To address these liquidity concerns, Trio Petroleum will likely need to secure additional financing through equity offerings, debt issuances, or strategic partnerships. The company's ability to raise capital will be crucial for funding its ongoing operations, development projects, and addressing its working capital deficit.

Operational Highlights and Outlook

South Salinas Project The South Salinas Project, Trio Petroleum's flagship asset, has been the focus of the company's exploration and development efforts. In March 2024, the company restarted production testing at the HV-3A well, which has been producing with a generally favorable oil-water ratio. Trio Petroleum plans to take steps in the third or fourth calendar quarter of 2024 to increase oil production from the HV-3A well, with the first revenue from oil produced expected in the third quarter of 2024.

McCool Ranch Oil Field Trio Petroleum's acquisition of a 21.92% working interest in the McCool Ranch Oil Field has been a strategic move to expand its presence in Monterey County. The company has successfully restarted production at three wells in the field, with the HH-1 well initially producing around 47 BOPD and currently producing approximately 20 BOPD. Trio Petroleum expects to restart the last two wells in the restart program during the third quarter of 2024 and commence a drilling program in the third or fourth quarter of 2024.

Asphalt Ridge Project The Asphalt Ridge Project in Uintah County, Utah, represents a significant opportunity for Trio Petroleum. The company has drilled two successful exploratory wells, the HSO 8-4 and the HSO 2-4, which encountered substantial oil-bearing pay zones in the Rimrock and Asphalt Ridge tar-sands. Trio Petroleum expects to commence production from the HSO 2-4 well, which has a downhole heater installed, in the third quarter of 2024.

Challenges and Risks

Trio Petroleum faces several challenges and risks that could impact its future performance:

1. Liquidity and Going Concern: The company's working capital deficit and accumulated deficit raise substantial doubt about its ability to continue as a going concern. Securing additional financing will be crucial for the company to fund its ongoing operations and development plans.

2. Operational Execution: Successful execution of the company's development plans for the South Salinas Project, McCool Ranch Oil Field, and Asphalt Ridge Project will be critical to generating revenue and achieving profitability.

3. Regulatory Environment: Obtaining the necessary permits and approvals for its operations, particularly in California, could pose challenges and delays for the company.

4. Commodity Price Volatility: Fluctuations in oil and gas prices can significantly impact Trio Petroleum's financial performance and the viability of its projects.

5. Competition: The company operates in a highly competitive industry, and its ability to acquire, develop, and produce oil and gas assets effectively will be crucial to its long-term success.

Conclusion

Trio Petroleum Corp is a diversified oil and gas exploration and development company that has been actively building its asset portfolio in California and Utah. While the company faces liquidity challenges and operational risks, its recent successes in restarting production at the McCool Ranch Oil Field and commencing drilling activities at the Asphalt Ridge Project demonstrate its potential to unlock value from its diverse asset base. The company has recently begun generating revenue, with $63,050 reported for the three months ended July 31, 2024, primarily from oil sales.

As Trio Petroleum continues to navigate the evolving industry landscape, its ability to secure additional financing and execute its development plans will be critical to its long-term growth and profitability. The company's future success will depend on its ability to increase production, manage costs effectively, and capitalize on the potential of its various projects while addressing the ongoing liquidity concerns and operational challenges it faces.