S-1/A: Trio Petroleum Corp. Eyes Expansion with New Offering Amid Management and Accounting Changes

Trio Petroleum Corp. is launching a best-efforts offering of up to 40,816,327 shares of common stock and pre-funded warrants to advance its oil and gas projects in California and Utah.

Summary

• Trio Petroleum Corp. (TPET) is undertaking a best-efforts offering of up to 40,816,327 shares of common stock and pre-funded warrants.
• The offering aims to raise funds for debt repayment, exercising an option in the Asphalt Ridge Project, and for general corporate purposes.
• Recent management changes include the appointment of Robin Ross as CEO and Chairman, and Stan Eschner as Vice Chairman.
• The company has transitioned to a new independent auditor, Bush & Associates CPA LLC, following the dismissal of BF Borgers CPA PC.
• TPET is progressing with its South Salinas Project, including restarting production testing at the HV-3A well.
• The company acquired a 22% working interest in the McCool Ranch Oil Field and is working to optimize production.
• TPET has an option to acquire up to a 20% working interest in the Asphalt Ridge Project and has commenced drilling activities.
• The company is also exploring a Carbon Capture and Storage (CCS) project at the South Salinas Project.
• TPET estimates it will have estimates of reserves and cash flow for the McCool Ranch Field and for the Asphalt Ridge Project by the end of TPET's fiscal year on October 31, 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed outlook. While there are positive developments such as new projects and management changes, the company's financial struggles and dependence on future funding raise concerns.

Positives

• Restart of production testing at the HV-3A well in the South Salinas Project.
• Acquisition of a 22% working interest in the McCool Ranch Oil Field.
• Commencement of drilling activities at the Asphalt Ridge Project.
• Exploration of a Carbon Capture and Storage (CCS) project at the South Salinas Project.

Negatives

• The company has a history of operating losses and has an accumulated deficit of $16,194,865 as of April 30, 2024.
• There is substantial doubt regarding the company's ability to continue as a going concern.
• The company may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits.
• If the company fails to raise sufficient funds in this offering to exercise its option for an additional 17.75% working interest in the Asphalt Ridge Leases, it could lose significant opportunity to participate with a greater working interest in the expected development of a substantial number of additional wells in connection with the Asphalt Ridge Asset which could result in substantially less revenues receivable by us.

Risks

• The company may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county and/or local agencies, which may materially affect our business.
• Due to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated drilling personnel.
• If we fail to raise sufficient funds in this offering to exercise our option for an additional 17.75% working interest in the Asphalt Ridge Leases, we could lose significant opportunity to participate with a greater working interest in the expected development of a substantial number of additional wells in connection with the Asphalt Ridge Asset which could result in substantially less revenues receivable by us.
• We have faced and may in the future face conflicts of interest in negotiations with related parties, including in negotiations with Lafayette Energy Corp and/or Trio LLC, entities which certain of our employees, officers and directors serve as employees, officers or directors, for example concerning assets where TPET and one of these entities have interests.
• We are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain, or expand revenue-generating operations.
• We face substantial uncertainties in estimating the characteristics of our assets, so you should not place undue reliance on any of our measures.
• There are uncertainties and risks in the drilling of wells, often involving significant costs that may be more than our estimates, and drilling may not result in any discoveries or additions to our future production or future reserves, or it may result in disproving or diminishing our current reserves.
• We have been an exploration stage entity and our future performance is uncertain.
• We are dependent on certain members of our management and technical team.
• Seismic studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities.
• The potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could adversely affect our ability to execute on a timely basis exploration and development plans within any budget.
• Our business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may in turn limit our ability to develop our exploration, appraisal, development and production activities.
• A substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial condition and results of operations.
• Unless we replace our petroleum reserves, our reserves and production will decline over time. Our business is dependent on the successful development of our various current petroleum assets and projects and/or on continued successful identification and exploitation of other petroleum assets and prospects, whereas the identified locations in which we drill in the future may not yield oil or natural gas in commercial quantities.
• Our inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets or delay our future oil and natural gas production.
• We are subject to numerous risks inherent to the exploration and production of oil and natural gas.
• We are subject to drilling and other operational environmental hazards.
• The development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, personnel and oilfield services, is subject to delays and cost overruns.
• Participants in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business.
• We and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities and costs.
• Our operations may be dependent on sources of electricity and/or natural gas that may be unreliable or costly.
• We expect continued and increasing attention to climate change and energy transition issues and associated regulations to constrain and impede the oil/gas industry.
• We may incur substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which we may not have adequate insurance coverage.
• We may be subject to risks in connection with acquisitions and the integration of significant acquisitions may be difficult.
• If we fail to realize the anticipated benefits of a significant acquisition, our results of operations may be adversely affected.
• The requirements of being a public company may strain our resources, result in more litigation and divert managements attention.
• We are subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we conduct business, and other tax authorities. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be materially adversely affected.
• Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit its stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Future Outlook

The company plans to develop its existing assets at the South Salinas Project, McCool Ranch Oil Field and Asphalt Ridge Project, and to acquire additional economically attractive oil and/or gas assets in California, Utah and elsewhere.

Industry Context

The document indicates that the oil and gas industry is operationally challenging in California due to regulatory issues and efforts to transition away from fossil fuels, but California remains a major consumer of petroleum products. The industry currently appears operationally favorable in Utah.

Comparison to Industry Standards

• The document references the West Cat Canyon and Orcutt Fields as analogous to the South Salinas Project, noting similar depth, geology, reservoir characteristics, and oil properties.
• West Cat Canyon had an average cumulative production of 238,900 STB per Monterey well on what appears to be 10-acre spacing, with an estimated ultimate recovery (EUR) of about 370,000 STB of oil.
• If it is assumed that the average well continued to produce with an annual decline of 20%, it would produce an additional 130,000 STB giving a total estimated ultimate recovery (EUR) of about 370,000 STB of oil.
• If it is further assumed that development occurred on 40-acre spacing rather than 10-acre spacing, an average well might produce as much as 1,480 MSTB.
• The P90 reserves of 167 MSTB and 134 MSTB for the Yellow and Blue zones, respectively, are consistent with what appears to be the poorer quality wells in West Cat Canyon and Orcutt.

Management Changes

Corporate Governance

Related Party Transactions

• Transactions with Trio LLC, including the acquisition of the South Salinas Project and the McCool Ranch Oil Field.
• Transactions with Lafayette Energy Corp, including the Asphalt Ridge Project.
• Loan from former Chief Executive Officer, Michael L. Peterson.

Stakeholder Impact

• Shareholders: Potential dilution from the offering and volatility in share price.
• Employees: Changes in management and potential impact on job security.
• Investors: Risks associated with the company's financial condition and ability to execute its business plan.

Next Steps

• Continue efforts to obtain permits for the South Salinas Project.
• Optimize production at the McCool Ranch Oil Field.
• Monitor results of new wells at the Asphalt Ridge Project and consider exercising the option for a full 20% working interest.
• Launch a Carbon Capture and Storage Project as part of the South Salinas Project.

Key Dates

Keywords

oil and gas, exploration, production, South Salinas Project, McCool Ranch Oil Field, Asphalt Ridge Project, capital raise, drilling, reserves, California, Utah