20-F: Trillion Energy International Inc. Reports Increased Revenue and Reduced Net Loss for Fiscal Year 2023

Trillion Energy International Inc. announces increased revenue and a significantly reduced net loss for the fiscal year ended December 31, 2023, driven by increased production from its SASB gas fields.

Summary

• Trillion Energy International Inc. reported a net income of $758,132 for the year ended December 31, 2023, compared to a net loss of $6,121,754 for the previous year.
• Operating revenue increased to $16,797,366 in 2023 from $9,375,029 in 2022, primarily due to increased production from the SASB fields.
• The Company incurred production expenses of $4,365,710 in 2023, compared to $3,567,875 in 2022, reflecting increased drilling and production activities.
• Depletion charges increased to $5,119,174 in 2023 from $1,451,032 in 2022, due to higher production levels.
• General and administrative expenses increased to $7,294,972 in 2023 from $6,397,500 in 2022, primarily due to increased salaries and compensation.
• The Company recorded a foreign exchange loss of $10,990,604 in 2023, compared to a gain of $1,272,450 in 2022.
• A gain on net monetary position of $18,984,099 was recognized in 2023.
• Total assets increased to $58,610,428 as of December 31, 2023, from $37,018,219 as of December 31, 2022, primarily due to an increase in oil and gas properties.
• Total liabilities increased to $36,397,856 as of December 31, 2023, from $16,392,288 as of December 31, 2022, mainly due to an increase in convertible debentures.
• The Company is focused on increasing production on eight wells at the SASB gas field.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company has improved its financial performance, there are still significant challenges related to working capital and funding.

Positives

• Significant increase in revenue driven by increased production.
• Substantial reduction in net loss, achieving net income for the year.
• Focus on increasing production at the SASB gas field.
• The company is selling some of its excess drilling inventory and is considering the sale of the Cendere oil field.
• The company is open to receiving a bank loan or other long-term debt instruments to improve cashflow.

Negatives

• The company has a negative working capital position.
• The company has accumulated deficits.
• The company has negative cash flows from operations.
• The company is not fully funded for its next 12 months of operations.
• The company recorded a foreign exchange loss of $10,990,604 in 2023.

Risks

• The Company's ability to continue as a going concern is dependent on securing additional financing.
• The Company is subject to foreign currency risks, particularly with the Turkish Lira.
• The Company is subject to operating hazards inherent in oil and natural gas exploration and production.
• The Company is subject to extensive and complex laws and government regulation.
• The Company faces intense competition in the oil and natural gas industry.

Future Outlook

Trillion's short-term focus is on increasing production on eight wells at the SASB gas field, with plans to drill sidetrack well extensions and evaluate exploration opportunities around the SASB development license area. The Company also plans to continue to develop its 50% working and revenue interest in Cudi-Gabar Oil Block in South-eastern Turkey and commence drilling later this year.

Industry Context

The report reflects a broader industry trend of increased focus on domestic energy production in Europe and Turkey, aiming to reduce reliance on Russian imports. The company's activities align with this trend, particularly its focus on the SASB gas field development.

Comparison to Industry Standards

• It is difficult to compare Trillion Energy directly to industry standards due to its unique operational focus and geographical location.
• However, the company's strategy of increasing production and reserves at its SASB natural gas field is a common practice among oil and gas companies.
• The company's use of independent qualified reserves evaluators is also a standard practice in the industry.
• The company's financial performance can be compared to other small-cap oil and gas companies operating in similar regions, but direct comparisons are limited due to differences in asset base, production levels, and financial structure.

Legal Proceedings

• The Company through its subsidiary PPE Turkey has advanced arbitration against an offshore drilling rig contractor for $ 20.3 million for gross negligent and breach of contact involving health and safety issues during the prior year drilling program resulting in loss and damages to Company.
• The Company and its subsidiary PPE Turkey is defending an action brought by the same drilling contractor in Europe to which it has advanced an arbitration claim, for drilling services and lost profits seeking $ 5 million.

Related Party Transactions

• Management fees and salaries of $924,083, director fees of $145,500, consulting fees of $52,313, and stock-based compensation of $1,294,051 were incurred to related parties.
• The Company issued 808,680 shares to directors for services performed and for RSUs which were granted and vested in previous periods.
• The Company issued 80,000 shares with a fair value of $115,304 to a director to settle debt of CAD$160,000 and recognized a gain on the settlement of $2,957.
• The Company repurchased 586,868 RSUs from directors and recognized a reduction to equity of $799,212 on the transaction.
• $473,331 of the RSUs repurchased was applied against outstanding notes receivable.
• Notes payable included CAD$402,115 (USD$420,281) due to related parties. The note payable is unsecured, bears interest at 6% per annum and matures on December 31, 2024.

Stakeholder Impact

• Shareholders: Potential dilution from future equity issuances, but also potential for increased value from successful development of assets.
• Employees: Potential impact from cost-cutting measures or changes in operations.
• Customers: Continued supply of oil and gas products.
• Suppliers: Continued business relationships, but potential for changes in payment terms or contract volumes.
• Creditors: Increased risk due to negative working capital and reliance on external financing.

Next Steps

• Increase production from the SASB field through artificial lift and smaller production tubing.
• Use cashflow to improve working capital.
• Pay down accounts payable.
• Drill one or more sidetrack well extensions at SASB to increase gas production, if and when cash is available.
• Continue to develop the 50% working and revenue interest in Cudi-Gabar Oil Block in South-eastern Turkey and commence drilling later this year.
• Seek a farm-in partner to pay for 100% of the expenditures for Cudi-Gabar Oil Block.

Key Dates

Keywords

Trillion Energy, SASB, Cendere, Oil and Gas, Production, Reserves, Exploration, Turkey, Financial Results, Convertible Debentures