10-Q: Permex Petroleum Faces Going Concern Amidst Q3 Losses

Permex Petroleum Corporation reported a net loss of $961,176 for Q3 2025, alongside a significant working capital deficiency and ongoing reliance on future capital raises, raising substantial doubt about its ability to continue as a going concern.

Summary

• Net loss for the nine months ended June 30, 2025, was $4,103,034, compared to $2,415,991 in the prior year.
• Net loss for the three months ended June 30, 2025, was $961,176, an improvement from $1,248,755 in the same period of 2024.
• Total revenues for the nine months ended June 30, 2025, increased significantly to $532,618 from $86,656 in the prior year.
• Oil sales revenue for the nine months ended June 30, 2025, was $302,904, up from $75,466, driven by the resumption of production at the Breedlove field.
• The company recognized $219,767 in fee revenue from a new operator services contract.
• Working capital deficiency worsened to $8,154,874 as of June 30, 2025, from $5,857,870 as of September 30, 2024.
• Cash balance increased to $2,088,429 as of June 30, 2025, from $1,513,591 as of September 30, 2024, primarily due to debt financing proceeds.
• The company completed a private placement of convertible debenture units for gross proceeds of $4,276,389 in November 2024 and another for $2,000,000 in July 2025 (subscription received June 2025).
• Average net oil-equivalent production for the nine months ended June 30, 2025, was 22.24 barrels per day, up from 5.39 barrels per day in the prior period.
• Average production costs per unit decreased to $87.99/Boe for the nine months ended June 30, 2025, from $112.44/Boe in the prior period.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by a significant working capital deficiency, cumulative losses, and a 'going concern' warning. While there are some operational improvements and successful capital raises, these are overshadowed by the fundamental liquidity issues, high debt burden, and reliance on future financing, indicating a very high-risk profile.

Positives

• Net loss for the three months ended June 30, 2025, decreased to $961,176 from $1,248,755 in the comparative period of 2024.
• Total revenues for the nine months ended June 30, 2025, significantly increased to $532,618 from $86,656 in the prior year, primarily due to resumed oil production and new operator services income.
• Oil sales revenue for the nine months ended June 30, 2025, rose to $302,904 from $75,466, following the successful restart of production at the Breedlove field in October 2024.
• All 12 previously producing wells at the Breedlove field were brought back online by December 2024, achieving an average gross production of 13.73 barrels of oil per day for the third quarter.
• A new operator services contract, entered in January 2025, generated $219,767 in fee revenue for the nine months ended June 30, 2025.
• General and administrative expenses for the three months ended June 30, 2025, decreased by 22% to $373,069 from $629,836, due to cost-saving initiatives including reduced consulting, insurance, legal fees, and salaries.
• Average production costs per unit decreased to $87.99/Boe for the nine months ended June 30, 2025, from $112.44/Boe in the prior period.
• The company successfully secured $4,276,389 in convertible debenture financing in November 2024 and an additional $2,000,000 in July 2025 (subscription received June 2025).

Negatives

• The company reported a net loss of $4,103,034 for the nine months ended June 30, 2025, which is higher than the $2,415,991 loss in the same period of 2024.
• A substantial working capital deficiency of $8,154,874 as of June 30, 2025, worsened from $5,857,870 as of September 30, 2024.
• The company has incurred cumulative losses of $20,292,686 since inception and has not yet achieved profitable operations.
• Lease operating expenses for the nine months ended June 30, 2025, significantly increased to $620,899 from $165,305, largely exceeding oil and gas sales revenue due to extensive workover and maintenance costs.
• General and administrative expenses for the nine months ended June 30, 2025, increased to $2,612,020 from $1,674,738, primarily due to higher accounting, audit, consulting, and legal fees related to delayed filings and financing efforts.
• Interest expense for the nine months ended June 30, 2025, surged to $1,305,201 from $98,217 in the prior period, reflecting increased debt.
• Net cash used in operating activities increased to $1,841,076 for the nine months ended June 30, 2025, from $1,124,351 in the prior period.
• Several key oil and gas properties (Pittcock, Mary Bullard, West Henshaw, Oxy Yates) remain shut-in due to financial constraints, pending successful capital raising.
• Average sales price for oil/condensate decreased to $65.41/Bbl for the nine months ended June 30, 2025, from $72.14/Bbl in the prior period.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to accumulated losses, working capital deficiency, and reliance on future financings.
• A limited U.S. public market for common shares exists, with FINRA having revoked the Form 211, leading to higher risk of wider spreads, increased volatility, price dislocations, and difficulty in selling shares.
• The company's ability to raise capital by selling common shares or enter into strategic collaborations may be impaired due to the limited U.S. trading market.
• Obligations to secured debenture holders (approximately $6.3 million owed) could lead to foreclosure on assets if the company defaults, potentially harming financial condition and operations.
• The company is exposed to commodity price volatility, which can significantly impact revenues.
• Risks include lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, and regulatory changes.
• Uncertainty is inherent in estimating natural gas reserves and projecting future rates of production, cash flow, and access to capital.
• The timing of development expenditures and the ability to acquire necessary funds for budgeted capital expenditures are uncertain, and any postponement of planned development could materially affect the business.
• Material weaknesses in internal control over financial reporting exist, including insufficient resources leading to inadequate segregation of duties, ineffective controls over depletion calculation and reserve reports, ineffective accounting and valuation of complex financial instruments, ineffective review of financial statements, and ineffective information technology general controls.
• The company has outstanding claims from certain trade vendors for non-payment totaling $811,318, with $753,430 accrued.

Future Outlook

The company expects to raise additional funds through equity and debt financings to meet working capital requirements, fund planned capital expenditures, and bring operated assets to full production capacity. Management has budgeted approximately $2 million in operating expenses and $6.5 million in capital expenditures for the next 12 months, with plans to restart its drilling and development program in the first part of 2026. The total estimated cost to develop proved undeveloped reserves is $15,620,000, and probable undeveloped reserves is $134,328,500, which the company plans to finance through a combination of cash on hand, debt, equity offerings, joint ventures, and cash flow from operations.

Management Comments

• Management believes that these actions provide a path for the Company to continue as a going concern subject to its continued ability to raise funds to maintain its operations and manage its working capital deficiency.
• Management has budgeted approximately $2 million in operating expenses and $6.5 million in capital expenditures for the next 12 months, which the Company plans to finance principally from one or more equity or debt financings.
• The purpose of these funds will be to resume full field operations, reduce the working capital deficit, as well as invest in additional oil and gas production activities across the Company's assets.
• Management expects to restart its drilling and development program in the first part of 2026, subject to receipt of additional funding.

Industry Context

The company operates in the Permian Basin, a major oil and gas producing region in the United States. Its strategy focuses on acquiring producing assets at a discount, increasing production through recompletion, re-entries, secondary recovery, and lower-risk infill drilling. The company's ability to restart production at Breedlove and secure an operator services contract indicates some operational activity in a competitive environment. However, the significant number of shut-in wells and reliance on external financing highlight the capital-intensive nature of the industry and the challenges faced by smaller operators in maintaining liquidity and funding development, especially when commodity prices fluctuate.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks. Therefore, a direct comparison to industry standards is not possible based solely on the provided information.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently involved in any material legal proceedings.
• The company has $811,318 in claims from certain trade vendors for non-payment, of which $753,430 have been accrued as of June 30, 2025. The company is working on potential settlements for these outstanding claims.

Related Party Transactions

• A $45,000 loan from a former director of the company remains outstanding as of June 30, 2025. The loan is unsecured, non-interest bearing, and has no specific repayment terms.

Stakeholder Impact

• Shareholders face significant dilution risk from ongoing and future equity financings (warrants issued with debentures). The limited U.S. public market due to FINRA revocation increases trading risk (wider spreads, volatility, price dislocations) and may impair ability to sell shares. The 'going concern' warning indicates high investment risk.
• Employees experienced a reduction in personnel due to management transition and cost-saving initiatives.
• The company entered into a new operator services contract, indicating continued service provision to customers.
• Suppliers/Creditors: The company has outstanding unpaid claims from trade vendors totaling $811,318, with $753,430 accrued, indicating potential payment delays or defaults. Secured debenture holders have security interests in assets, posing a risk to other creditors in case of default.

Next Steps

• Secure additional equity and debt financings to meet working capital requirements and fund planned capital expenditures.
• Resume full field operations and invest in additional oil and gas production activities across assets.
• Restart the drilling and development program in the first part of 2026, contingent on securing sufficient funding.
• Continue engaging with trade partners to settle outstanding claims and remedy the working capital deficiency.
• Address material weaknesses in internal control over financial reporting.
• File a new Form 211 with FINRA to improve the U.S. public market for common shares.

Key Dates

Recommendation

The company is operating under a 'going concern' warning, indicating severe financial instability and a high risk of failure. It has a substantial and worsening working capital deficiency, cumulative losses, and is heavily reliant on continuous, dilutive capital raises to fund operations and development. Key properties remain shut-in due to financial constraints. Material weaknesses in internal controls further compound the risk. The limited U.S. trading market due to regulatory issues also severely impacts liquidity and price discovery for shareholders. Despite some operational improvements in production and revenue, the fundamental financial health is extremely poor, making the stock a highly speculative and risky investment.

Keywords

Oil and Gas, Permian Basin, Energy, Exploration, Production, SEC Filing, 10-Q, Convertible Debentures, Working Capital, Going Concern, Texas, New Mexico, Oil Wells, Natural Gas, Financial Reporting