S-1/A: Permex Petroleum Eyes Public Offering to Fuel Growth in Permian Basin

Permex Petroleum Corporation files an amended registration statement for a proposed public offering of common and pre-funded units to fund its oil and gas operations in the Permian Basin.

Summary

• Permex Petroleum Corporation is planning a firm commitment public offering of common units, each consisting of one common share and one warrant, and pre-funded units, each consisting of one pre-funded warrant and one warrant.
• The company intends to list its common shares and warrants on upon meeting the initial listing requirements.
• The offering price is estimated to be between $ and $ per common unit, with an assumed initial public offering price of $ per common unit.
• The company plans to use the net proceeds from the offering for budgeted capital expenditures, continuing operating expenses, and working capital.
• MKM Engineering estimates the net present value of Permex's proved plus probable reserves at $228.856 million as of September 30, 2024.
• The company owns and operates 97 oil and gas wells across more than 11,700 net acres, including 66 shut-in opportunities.
• The company holds royalty interests in 73 wells and five permitted wells across 3,800 acres within the Permian Basin.
• The company expects to restart its drilling and development program in the first quarter of 2025, subject to receipt of additional funding.
• The company estimates that the total cost to develop the Companys proved undeveloped reserves of 1,186.7 MBbl of oil and 858.6 Mcf of natural gas as of September 30, 2024 is $15,620,000.
• The company estimates that the total cost to develop the Companys probable undeveloped reserves of 12,212.7 MBbl of oil and 15,427.2 Mcf of natural gas as of September 30, 2024 is $134,328,500.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company has valuable assets and growth potential, it also faces significant financial challenges and risks. The need for additional funding and the going concern warning temper the positive aspects.

Positives

• The company owns and operates 97 oil and gas wells across more than 11,700 net acres, including 66 shut-in opportunities.
• The company holds royalty interests in 73 wells and five permitted wells across 3,800 acres within the Permian Basin.
• The company expects to restart its drilling and development program in the first quarter of 2025, subject to receipt of additional funding.

Negatives

• The company's independent registered public accounting firm has expressed substantial doubt about its ability to continue as a going concern.
• The company has a limited operating history and has not generated revenue in excess of its expenses.
• The company's financial situation creates doubt whether it will continue as a going concern.
• The company's operations were shut-in for nearly eight months in 2024 due to financial constraints.
• There is currently a limited U.S. public market for the company's common shares.

Risks

• If the company fails to obtain the capital necessary to fund its operations, it will be unable to continue its operations and investors will likely lose their entire investment.
• Oil and gas prices are volatile, and declines in prices may adversely affect the company's financial position, financial results, cash flows, access to capital and ability to grow.
• The actual quantities and present value of the company's proved oil, gas, and NGL reserves may be less than it has estimated.
• Drilling for and producing oil, natural gas and NGLs are high risk activities with many uncertainties that could adversely affect the company's financial condition or results of operations.
• The company's operations are concentrated in the Permian and Delaware Basins, making it vulnerable to risks associated with operating in a limited geographic area.
• The market price of the company's securities is volatile and may not accurately reflect the long term value of the company.
• The company has issued convertible debentures, options and warrants and may continue to issue additional securities in the future, which may dilute your percentage ownership interest and may also result in downward pressure on the price of our common shares.

Future Outlook

The company expects to restart its drilling and development program in the first quarter of 2025, subject to receipt of additional funding, and anticipates spending approximately $6 million in capital expenditures towards developing its proved undeveloped reserves during the 2025 fiscal year, subject to acquiring the necessary financing.

Industry Context

The announcement reflects a trend among smaller energy companies to seek public funding to expand operations in prolific basins like the Permian, where production costs can be offset by high output potential.

Comparison to Industry Standards

• The company's reliance on independent engineering firms for reserve estimates is standard practice in the oil and gas industry, particularly for smaller companies without extensive in-house technical expertise.
• The use of PV10 as a metric for valuing reserves is a common industry practice, allowing investors to compare the potential profitability of different companies or projects.
• The company's focus on recompletion and re-entry of existing wells aligns with strategies employed by other operators seeking to maximize production from mature fields.

Management Changes

Legal Proceedings

• Atlas Tubular, LLC filed a suit against the Company on October 10, 2023, seeking damages of at least $172,981 for unpaid invoices.
• Foundation Energy Services, LLC filed a suit against the Company on September 7, 2023, seeking damages of at least $66,074 for unpaid invoices.
• Premier Energy Services, LLC filed a suit against the Company on August 7, 2023, seeking damages of at least $104,205 for unpaid invoices.
• Hudson Pumping Inc. filed a suit against the Company on December 2, 2024, seeking damages of at least $60,050 for unpaid invoices.
• Cudd Energy Services, Inc. filed a suit against the Company and Mehran Ehsan on July 17, 2024, seeking damages of at least $130,224 for unpaid invoices.
• R&B Oilfield Services, LLC filed a suit against the Company on November 6, 2024, seeking damages of at least $36,020 for unpaid invoices.
• Q2 Artificial Lift Services (SOA) Inc. filed a suit against the Company on February 5, 2024, seeking damages of at least $125,102 for unpaid invoices.

Related Party Transactions

• On August 30, 2024, the company entered into a Separation Agreement with Mehran Ehsan, the Companys former Chief Executive Officer, until April 29, 2024 and Vice President of Business Development, until August 30, 2024.
• The Separation Agreement provides for: (i) a lump sum payment of $100,000 payable upon the Companys receipt of capital investment of no less than $1,000,000 or by October 31, 2024, whichever occurs first; (ii) six equal monthly payments of $7,500 starting October 1, 2024; and (iii) the transfer of ownership of a Company vehicle with a fair value of $35,155.

Stakeholder Impact

• Shareholders face potential dilution from the offering and the exercise of warrants.
• Employees may experience uncertainty due to the company's financial challenges and potential operational changes.
• Customers may be affected by the company's ability to maintain production and meet contractual obligations.
• Suppliers and creditors face increased risk of non-payment due to the company's working capital deficiency.

Next Steps

• The company intends to apply to have the Common Shares and Warrants listed on upon our satisfaction of initial listing criteria.
• The company expects to restart its drilling and development program in the first quarter of 2025, subject to receipt of additional funding.

Key Dates