10-Q: Trio Petroleum Reports Q3 Losses, Shifts Focus to Canada

Trio Petroleum Corp. reported a net loss of $1.39 million for Q3 2025, an improvement from the prior year, while increasing revenue from new Canadian assets and addressing going concern doubts through recent financings.

Summary

• Net loss for the three months ended July 31, 2025, was $1,386,723, a 36.3% improvement from $2,178,571 in the same period of 2024.
• Net loss for the nine months ended July 31, 2025, was $4,566,000, a 42.4% improvement from $7,926,554 in the same period of 2024.
• Revenues increased by 205.1% to $192,395 for the three months ended July 31, 2025, primarily from new Saskatchewan assets, compared to $63,052 in 2024.
• Revenues for the nine months ended July 31, 2025, increased by 66.6% to $226,485, mainly from Saskatchewan, compared to $135,975 in 2024 from McCool Ranch.
• The company had a working capital deficit of $679,729 as of July 31, 2025, an improvement from $2,025,480 as of October 31, 2024.
• Cash balance as of July 31, 2025, was $584,365, up from $285,945 as of October 31, 2024.
• Operations at the McCool Ranch Oil Field were terminated in May 2025, resulting in a $500,614 write-off of capitalized costs.
• The option to acquire an additional 17.75% working interest in the Asphalt Ridge leases expired unexercised in May 2025, retaining only a 2.25% interest.
• Acquired oil and gas lease rights for four proved properties in Saskatchewan, Canada, in April 2025, totaling 320 net acres, which are now generating revenue.
• Entered into a non-binding Letter of Intent (LOI) in May 2025 for the potential acquisition of 2,000 acres at P.R. Spring, Utah, contingent on sustained production rates from Asphalt Ridge wells by May 15, 2026.
• The company continues to face substantial doubt about its ability to continue as a going concern due to recurring losses and insufficient cash resources for the next twelve months.
• Successfully raised $1,020,000 in gross proceeds from a private placement of unsecured convertible promissory notes in August 2025.

Sentiment

Score: 4

Explanation: While the company showed improved net loss and revenue growth from new Canadian assets, the explicit 'going concern' doubt, abandonment of a project, and continued reliance on external financing for survival indicate a precarious financial position. The strategic shift and new acquisitions offer potential, but current financial health remains weak.

Positives

• Net loss significantly improved for both the three-month ($1.39M vs $2.18M) and nine-month ($4.57M vs $7.93M) periods ended July 31, 2025, compared to the prior year.
• Revenue increased substantially by 205.1% for the three months and 66.6% for the nine months ended July 31, 2025, driven by new Saskatchewan assets.
• Working capital deficit improved from $2,025,480 to $679,729, indicating better short-term financial health.
• Cash balance increased to $584,365 as of July 31, 2025, from $285,945 as of October 31, 2024.
• Successful acquisition of Novacor assets in Saskatchewan, Canada, which are now generating sustained and improved revenues.
• Reduced general and administrative expenses by approximately $0.7 million for the three months and $1.6 million for the nine months ended July 31, 2025, reflecting cost management efforts.
• Reduced stock-based compensation expense by approximately $0.1 million for the three months and $0.4 million for the nine months ended July 31, 2025.
• Secured $1,020,000 in gross proceeds from a private placement of convertible debt financing in August 2025, providing additional working capital.

Negatives

• Continued to incur significant net losses, with an accumulated deficit of $24,639,679 as of July 31, 2025.
• Operations at the McCool Ranch Oil Field were terminated in May 2025 due to cost-prohibitive cyclic-steam operations and water disposal costs in California, resulting in a $500,614 write-off.
• The option to acquire an additional 17.75% working interest in the Asphalt Ridge leases expired unexercised in May 2025, limiting potential growth in that project.
• The HV-3A discovery well at the South Salinas Project is currently idled pending assessment of increasing gross production rate and discussions for a joint venture.
• Incurred a $528,054 loss on note conversion for the April 2025 financing due to the fair value of shares issued exceeding principal amounts settled.
• Incurred a $611,763 loss on abandonment of oil and gas properties for the nine months ended July 31, 2025.
• Used $2,015,896 in cash for operating activities for the nine months ended July 31, 2025.

Risks

• Substantial doubt about the ability to continue as a going concern due to recurring losses and insufficient cash resources to meet projected operating and capital requirements for the next twelve months.
• Dependence on external financing (equity and debt) to sustain operations and fund development activities, with no assurance of future financing availability on acceptable terms.
• Volatility of oil and natural gas prices can significantly impact cash flow and profitability.
• Changes in state and provincial regulations, market conditions, or environmental policies in California and Saskatchewan could significantly impact financial performance.
• Uncertainties inherent in making estimates of oil and natural gas resources.
• Potential liabilities inherent in oil and natural gas operations, including drilling risks and other operational and environmental hazards.
• Cost of compliance with current and future government regulation of the oil and gas industry, including environmental, health and safety, or climate change laws.
• Geological, technical, drilling, and processing problems could hinder successful development.

Future Outlook

The company's primary business strategies and objectives are to aggressively grow its recently acquired Canadian assets by acquiring projects that generate immediate cash flow and/or offer workover opportunities without committing huge resources to new exploratory drilling, or offer transformative growth potential with strategic investment in favorable political and economic environments such as the option on P.R. Spring in Uintah Basin, Utah. The current strategy and focus at the South Salinas Project is to seek out a joint venture partner with the knowledge and capacity to operate in California, and to secure approval for a short-term water-disposal program to reduce lease operating costs. The company is also taking initial steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project. The P.R. Spring project's future depends on monitoring the results of new wells at the Asphalt Ridge project, with an option to exercise a definitive development agreement if production attains 40 barrels per day for thirty days from both wells.

Management Comments

• Our Canadian project has the potential through workovers to double production which we immediately began planning following closing.
• Novacor, whom we acquired the project from, is one of the lowest cost operators with lift costs of $10 per barrel.
• Our focus remains on acquiring projects that generate immediate cash flow or offer transformative growth potential with strategic investment.
• Initially, California was a significant part of our geographic focus; however, due to rising drilling costs and the negative impact on potential profitability, we have strategically shifted our efforts beyond California to pursue more economically viable opportunities.
• We are committed to attempting to reduce our own carbon footprint and, where possible, that of others. For this reason, we are taking initial steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project, which appears ideal for such a task.
• We believe it is feasible to develop the major oil and gas resources of the South Salinas Project and to concurrently establish a substantial CCS project and potentially a CO2 storage hub and/or Direct Air Capture (DAC) hub.
• TPET's current strategy and focus at the South Salinas Project is to seek out a joint venture partner with the knowledge and capacity to operate in California.
• TPET's current strategy and focus at the P.R. Spring project is to monitor the results of the new 2-4 and 8-4 wells at the Company's Asphalt Ridge project. Once production attains 40 barrels per day for thirty days from both wells, TPET will be in a position to exercise its option on the 2000-acre project and enter into a definitive development agreement.

Industry Context

The company is strategically shifting its focus from California, where rising drilling costs and water disposal expenses make operations less economically viable, to more favorable regions like Saskatchewan, Canada, known for heavy oil, and Utah. This move aligns with a broader industry trend of optimizing operational efficiency and seeking lower-cost production environments. The emphasis on acquiring projects with immediate cash flow or workover potential, rather than solely new exploratory drilling, reflects a cautious approach in a volatile commodity market. The exploration of Carbon Capture and Storage (CCS) projects also positions the company to align with growing environmental regulations and sustainability trends in the energy sector, potentially attracting new partners and revenue streams.

Comparison to Industry Standards

• Novacor, the acquired Canadian operator, is noted as one of the lowest cost operators with lift costs of $10 per barrel, which is competitive within the heavy oil region of Lloydminster, Saskatchewan. This cost efficiency is a key factor in the company's strategic shift to Canadian assets.
• The company's decision to abandon McCool Ranch operations due to cost-prohibitive cyclic-steam operations and water disposal costs in California highlights the challenging regulatory and economic environment in the state compared to other oil-producing regions.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently subject to any legal proceedings.

Related Party Transactions

• Trio LLC operates the South Salinas Project on behalf of the company and holds a 3.8% working interest, while the company holds an 85.775% working interest. Funds are provided to Trio LLC for development and operations.
• The McCool Ranch Purchase Agreement was entered into with Trio LLC in October 2023 for a 21.918315% working interest. This agreement was terminated in May 2025.
• Restricted Stock Units (RSUs) were issued to directors, with stock-based compensation recognized for these awards.
• Restricted shares were issued to executives and employees, with stock-based compensation recognized. Four employee agreements were not renewed, resulting in 4,375 forfeited restricted shares.
• A three-month consulting agreement was entered into with Mr. Peterson (former CEO) on July 11, 2024, including a monthly cash fee of $10,000 and an award of 50,000 RSUs.
• An employment agreement was entered into with Mr. Robin Ross (CEO) on July 11, 2024, including an annual base salary of $300,000 and an award of 100,000 RSUs. His salary was increased to $400,000 on August 1, 2025, with an additional 625,000 shares granted.
• 10,000 restricted stock units were awarded to Greg Overholtzer (CFO) on October 21, 2024. He also entered into an independent contractor agreement on January 1, 2025, for a monthly fee of $12,500, and was awarded 62,500 shares on August 1, 2025.
• The company borrowed $125,000 from its former CEO, Michael L. Peterson, on March 26, 2024, via an Unsecured Subordinated Promissory Note, which was paid off on November 25, 2024.
• A Loan and Note Purchase Agreement was entered into with Trio Canada (wholly-owned subsidiary) on April 4, 2025, for a loan of $1,131,000, with $700,665 used for the Novacor acquisition.
• On August 1, 2025, four non-employee board members were awarded an aggregate of 850,000 common shares.

Stakeholder Impact

• **Shareholders:** Face dilution risk from ongoing equity issuances for financing and debt conversions. The 'going concern' doubt poses a significant risk to investment value. However, improved net loss and revenue growth from new assets could be positive long-term if sustained.
• **Employees/Management:** Compensation adjustments and equity awards for CEO and CFO, and equity awards for board members, indicate efforts to retain key personnel. The termination of McCool Ranch operations may have impacted some employees.
• **Creditors:** The company's reliance on debt financing and the 'going concern' warning suggest higher risk for creditors, although recent capital raises provide some short-term relief.
• **Customers:** Continued oil production from Saskatchewan assets ensures supply, while the idling of the South Salinas HV-3A well and abandonment of McCool Ranch may shift supply sources.
• **Suppliers/Operators:** Trio LLC continues to operate the South Salinas Project. Novacor Exploration Ltd. serves as the on-site operator for the newly acquired Canadian assets, indicating ongoing business relationships.

Next Steps

• Assess the viability of increasing the gross production rate at the HV-3A discovery well at Presidents Field (South Salinas Project), potentially by adding perforations or acidizing the well.
• Engage in further discussions with local oil and gas companies to joint venture the South Salinas Project.
• Monitor the production results of the new 2-4 and 8-4 wells at the Asphalt Ridge project to determine if the 40 barrels per day for 30 days sustained production rate is achieved.
• If production targets are met at Asphalt Ridge, exercise the option on the 2,000-acre P.R. Spring project and enter into a definitive development agreement.
• Seek additional capital through equity securities, debt financing, or other strategic arrangements to address liquidity shortfalls and fund operations.
• Continue efforts to obtain conditional use permits and a full field development permit for the South Salinas Project from Monterey County.
• Continue efforts to obtain a permit for a water disposal project at the South Salinas Project from CalGEM and the California Water Boards.
• Advance initial steps to launch a Carbon Capture and Storage (CCS) project as part of the South Salinas Project, including discussions with third parties for participation.

Key Dates

Recommendation

The company presents a mixed bag of developments. While there's a clear strategic shift towards more economically viable Canadian assets, leading to improved revenue and reduced losses, the explicit 'going concern' warning and continued reliance on external financing are significant red flags. The abandonment of the McCool Ranch project and the unexercised Asphalt Ridge option highlight past operational challenges. Recent capital raises provide a lifeline, but long-term profitability and sustained positive cash flow from operations are yet to be proven. For a seasoned investor, the current situation warrants a 'hold' position, observing if the Canadian assets can truly deliver consistent profitability and if the company can resolve its going concern issues without excessive dilution or further project write-offs. The P.R. Spring option and CCS project offer future potential but are speculative at this stage.

Keywords

Oil and Gas, Exploration, Development, Saskatchewan, Lloydminster, South Salinas Project, Asphalt Ridge, P.R. Spring, Convertible Debt, SEC 10-Q, Energy, Petroleum, Heavy Oil, Carbon Capture and Storage, Going Concern