OILCF 8-K
Permex Petroleum Corp (OILCF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 2.02. Results of Operations and Financial Condition.
On August 29, 2024, Permex Petroleum Corporation (the “Company”) filed preliminary unaudited interim consolidated financial statements for the three and nine month periods ended June 30, 2024 with the securities regulators in each Canadian jurisdiction in which is it is a reporting issuer on its SEDAR+ profile (the “Interim Financial Statements”) and related Management’s Discussion and Analysis relating thereto (the “MD&A”). The Interim Financial Statements were not reviewed by the Company’s independent registered public accounting firm. Copies of the Interim Financial Statements and MD&A are attached as Exhibits 99.1, and 99.2 to this Current Report on Form 8-K, respectively, and are incorporated herein by reference.
The information furnished in this Form 8-K, including the exhibits hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 9.01 Financial Statements and Exhibits
| (d) | Exhibits. |
| Exhibit No. | Description | |
| 99.1 | Unaudited condensed interim consolidated financial statements for the three and nine months ended June 30, 2024 | |
| 99.2 | Management’s discussion and analysis of unaudited condensed interim consolidated financial statements for the three and nine months ended June 30, 2024 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| -2- |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Permex Petroleum Corporation | ||
| August 29, 2024 | By: | /s/ Bradley Taillon |
| Bradley Taillon | ||
| Chief Executive Officer | ||
| -3- |
Exhibit 99.1
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended June 30, 2024
(EXPRESSED IN UNITED STATES DOLLARS)
(UNAUDITED)
MANAGEMENT’S RESPONSIBILITY FOR INTERIM FINANCIAL REPORT
The accompanying unaudited condensed consolidated interim financial report of Permex Petroleum Corporation (the “Company”) has been prepared by and is the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of this financial report.
PERMEX PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2024 | September 30, 2023 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 428,385 | $ | 82,736 | ||||
| Trade and other receivables (net of allowance: June 30, 2024 - $nil; September 30, 2023 - $nil) | 20,126 | 78,441 | ||||||
| Prepaid expenses and deposits | 101,389 | 127,239 | ||||||
| Total current assets | 549,900 | 288,416 | ||||||
| Non-current assets | ||||||||
| Reclamation deposits | 75,000 | 145,000 | ||||||
| Property and equipment, net of accumulated depreciation and depletion | 10,306,590 | 10,361,419 | ||||||
| Right of use asset, net | 96,058 | 146,912 | ||||||
| Total assets | $ | 11,027,548 | $ | 10,941,747 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Trade and other payables | $ | 3,774,392 | $ | 3,228,327 | ||||
| Loans payable | 160,936 | 125,936 | ||||||
| Convertible debentures | 1,365,000 | - | ||||||
| Lease liability – current portion | 78,791 | 77,069 | ||||||
| Total current liabilities | 5,379,119 | 3,431,332 | ||||||
| Non-current liabilities | ||||||||
| Asset retirement obligations | 287,761 | 260,167 | ||||||
| Lease liability, less current portion | 30,538 | 81,456 | ||||||
| Total liabilities | 5,697,418 | 3,772,955 | ||||||
| Stockholders’ Equity | ||||||||
| Common stock, no par value per share; unlimited shares authorized, 551,503 shares* issued and outstanding as of June 30, 2024 and September 30, 2023. | 14,947,150 | 14,947,150 | ||||||
| Additional paid-in capital | 5,227,962 | 4,549,431 | ||||||
| Accumulated other comprehensive loss | (127,413 | ) | (127,413 | ) | ||||
| Accumulated deficit | (14,717,569 | ) | (12,200,376 | ) | ||||
| Total stockholders’ equity | 5,330,130 | 7,168,792 | ||||||
| Total liabilities and stockholders’ equity | $ | 11,027,548 | $ | 10,941,747 | ||||
| * | The number of shares has been restated to reflect the 4:1 reverse stock split effective on October 23, 2023 (Note 1). All historical share and per share amounts reflected in this report have been adjusted to reflect the reverse stock split. |
Approved by the board of directors on August 29, 2024 and signed on its behalf by:
| “Bradley Taillon” | Director | “Kevin Nanke” | Director |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
PERMEX
PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | |||||||||||||
| Revenues | ||||||||||||||||
| Oil and gas sales | $ | - | $ | 156,716 | $ | 75,466 | $ | 541,459 | ||||||||
| Royalty income | 2,671 | 303 | 11,190 | 18,140 | ||||||||||||
| Total revenues | 2,671 | 157,019 | 86,656 | 559,599 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Lease operating expense | 10,421 | 235,511 | 165,305 | 762,668 | ||||||||||||
| General and administrative | 629,836 | 788,659 | 1,674,738 | 3,014,307 | ||||||||||||
| Depletion and depreciation | 14,875 | 37,286 | 54,829 | 120,459 | ||||||||||||
| Accretion on asset retirement obligations | 9,198 | 7,994 | 27,594 | 23,982 | ||||||||||||
| Total operating expenses | (664,330 | ) | (1,069,450 | ) | (1,922,466 | ) | (3,921,416 | ) | ||||||||
| Loss from operations | (661,659 | ) | (912,431 | ) | (1,835,810 | ) | (3,361,817 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income | - | 108 | - | 108 | ||||||||||||
| Other income | - | 6,000 | 8,000 | 18,000 | ||||||||||||
| Foreign exchange gain (loss) | 5,146 | (3,310 | ) | 5,087 | (7,690 | ) | ||||||||||
| Interest and debt expense | (693,444 | ) | (1,026 | ) | (694,470 | ) | (2,208 | ) | ||||||||
| Gain on settlement of warrant liability | - | 930 | - | 930 | ||||||||||||
| Change in fair value of warrant liability | - | 136 | - | 22,570 | ||||||||||||
| Total other income (expense) | (688,298 | ) | 2,838 | (681,383 | ) | 31,710 | ||||||||||
| Net loss and comprehensive loss | $ | (1,349,957 | ) | $ | (909,593 | ) | $ | (2,517,193 | ) | $ | (3,330,107 | ) | ||||
| Deemed dividend arising from warrant modification | - | (543,234 | ) | - | (543,234 | ) | ||||||||||
| Net loss attributable to common stockholders | $ | (1,349,957 | ) | $ | (1,452,827 | ) | $ | (2,517,193 | ) | $ | (3,873,341 | ) | ||||
| Basic and diluted loss per common share | $ | (2.45 | ) | $ | (2.96 | ) | $ | (4.56 | ) | $ | (7.97 | ) | ||||
| Weighted average number of common shares outstanding* | 551,503 | 491,036 | 551,503 | 485,779 | ||||||||||||
| * | The number of shares has been restated to reflect the 4:1 reverse stock split effective on October 23, 2023 (Note 1). All historical share and per share amounts reflected in this report have been adjusted to reflect the reverse stock split (Note 1). |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
PERMEX PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three months ended June 30
| Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Deficit | Total equity | |||||||||||||||||||
| Balance, March 31, 2024 | 551,503 | $ | 14,947,150 | $ | 4,549,431 | $ | (127,413 | ) | $ | (13,367,612 | ) | $ | 6,001,556 | |||||||||||
| Warrants issued in private placement | - | - | 678,531 | - | - | 678,531 | ||||||||||||||||||
| Net loss | - | - | - | - | (1,349,957 | ) | (1,349,957 | ) | ||||||||||||||||
| Balance, June 30, 2024 | 551,503 | $ | 14,947,150 | $ | 5,227,962 | $ | (127,413 | ) | $ | (14,717,569 | ) | $ | 5,330,130 | |||||||||||
| Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Deficit | Total equity | |||||||||||||||||||
| Balance, March 31, 2023 | 483,150 | $ | 14,337,739 | $ | 4,513,512 | $ | (127,413 | ) | $ | (10,680,929 | ) | $ | 8,042,909 | |||||||||||
| Exercise of warrants | 68,353 | 781,953 | - | - | - | 781,953 | ||||||||||||||||||
| Share issuance costs | - | (129,780 | ) | 35,919 | - | - | (93,861 | ) | ||||||||||||||||
| Deemed dividend arising from warrant modification | - | - | 543,234 | - | - | 543,234 | ||||||||||||||||||
| Warrant modification | - | - | (543,234 | ) | - | - | (543,234 | ) | ||||||||||||||||
| Net loss | - | - | - | - | (909,593 | ) | (909,593 | ) | ||||||||||||||||
| Balance, June 30, 2023 | 551,503 | $ | 14,989,912 | $ | 4,549,431 | $ | (127,413 | ) | $ | (11,590,522 | ) | $ | 7,821,408 | |||||||||||
PERMEX PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (cont’d…)
(UNAUDITED)
Nine months ended June 30
| Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Deficit | Total equity | |||||||||||||||||||
| Balance, September 30, 2023 | 551,503 | $ | 14,947,150 | $ | 4,549,431 | $ | (127,413 | ) | $ | (12,200,376 | ) | $ | 7,168,792 | |||||||||||
| Warrants issued in private placement | - | - | 678,531 | - | - | 678,531 | ||||||||||||||||||
| Net loss | - | - | - | - | (2,517,193 | ) | (2,517,193 | ) | ||||||||||||||||
| Balance, June 30, 2024 | 551,503 | $ | 14,947,150 | $ | 5,227,962 | $ | (127,413 | ) | $ | (14,717,569 | ) | $ | 5,330,130 | |||||||||||
| Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Deficit | Total equity | |||||||||||||||||||
| Balance, September 30, 2022 | 483,150 | $ | 14,337,739 | $ | 4,513,194 | $ | (127,413 | ) | $ | (8,260,415 | ) | $ | 10,463,105 | |||||||||||
| Exercise of warrants | 68,353 | 781,953 | - | - | - | 781,953 | ||||||||||||||||||
| Share issuance costs | - | (129,780 | ) | 35,919 | - | - | (93,861 | ) | ||||||||||||||||
| Deemed dividend arising from warrant modification | - | - | 543,234 | - | - | 543,234 | ||||||||||||||||||
| Warrant modification | - | - | (543,234 | ) | - | - | (543,234 | ) | ||||||||||||||||
| Share-based payments | - | - | 318 | - | - | 318 | ||||||||||||||||||
| Net loss | - | - | - | - | (3,330,107 | ) | (3,330,107 | ) | ||||||||||||||||
| Balance, June 30, 2023 | 551,503 | $ | 14,989,912 | $ | 4,549,431 | $ | (127,413 | ) | $ | (11,590,522 | ) | $ | 7,821,408 | |||||||||||
| * | The number of shares has been restated to reflect the 4:1 reverse stock split effective on October 23, 2023 (Note 1). All historical share and per share amounts reflected in this report have been adjusted to reflect the reverse stock split (Note 1). |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
PERMEX PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30
(UNAUDITED)
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (2,517,193 | ) | $ | (3,330,107 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Accretion on asset retirement obligations | 27,594 | 23,982 | ||||||
| Depletion and depreciation | 54,829 | 120,459 | ||||||
| Foreign exchange loss (gain) | (5,087 | ) | - | |||||
| Finance expense | 14,913 | - | ||||||
| Debt expense | 678,531 | - | ||||||
| Gain on settlement of warrant liability | - | (930 | ) | |||||
| Change in fair value of warrant liability | - | (22,570 | ) | |||||
| Share-based payments | - | 318 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade and other receivables | 58,315 | 40,599 | ||||||
| Prepaid expenses and deposits | 25,850 | 180,877 | ||||||
| Trade and other payables | 536,239 | 1,045,347 | ||||||
| Right of use asset and lease liability | 1,658 | 5,819 | ||||||
| Net cash used in operating activities | (1,124,351 | ) | (1,936,206 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capital expenditures on property and equipment | - | (1,249,704 | ) | |||||
| Reclamation deposit redemption | 70,000 | - | ||||||
| Net cash provided by (used in) investing activities | 70,000 | (1,249,704 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from debenture financing | 1,365,000 | - | ||||||
| Proceeds from exercise of warrants | - | 781,953 | ||||||
| Share issuance costs | - | (93,861 | ) | |||||
| Loan payable proceeds | 45,000 | - | ||||||
| Loan payable repayment | (10,000 | ) | - | |||||
| Debenture repayment | - | (38,291 | ) | |||||
| Net cash provided by (used in) financing activities | 1,400,000 | 649,801 | ||||||
| Change in cash and cash equivalents during the period | 345,649 | (2,536,109 | ) | |||||
| Cash and cash equivalents, beginning of the period | 82,736 | 3,300,495 | ||||||
| Cash and cash equivalents, end of the period | $ | 428,385 | $ | 764,386 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Interest paid | $ | 1,026 | $ | 1,182 | ||||
| Taxes paid | $ | - | $ | - | ||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Share purchase warrants issued in connection with exercise of warrants | $ | $ | 579,153 | |||||
| Trade and other payables related to property and equipment | $ | - | $ | 1,459,667 | ||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 1. | BACKGROUND |
Permex Petroleum Corporation (the “Company”) was incorporated on April 24, 2017 under the laws of British Columbia, Canada and maintains its head office at 1700 Post Oak Boulevard, 2 Blvd Place Suite 600, Houston Texas, 77056. Its registered office is located at 10th floor, 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5. The Company is primarily engaged in the acquisition, development and production of oil and gas properties in the United States. The Company’s oil and gas interests are located in Texas and New Mexico, USA. The Company is listed on the Canadian Securities Exchange (the “CSE”) under the symbol “OIL”. On April 16, 2024, the Company received a cease trade order issued by the British Columbia Securities Commission (the “BCSC”) due to its failure to file the annual financial statements for fiscal 2023 and quarterly reports for fiscal 2024 (“FFCTO”). The trading was halted on the CSE effective April 17, 2024. The Company has brought all required filings up to date and is currently working on the revocation of the FFCTO.
On September 12, 2023, the Company’s board of directors approved a reverse stock split of the Company’s issued and outstanding common stock at a 1 for 4 ratio, which was effective October 23, 2023. All issued and outstanding common stock, options, and warrants to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect the reverse stock splits for all periods presented.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of presentation
The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2023 or for any other interim period or for any other future fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes for the fiscal year ended September 30, 2023.
Principles of Consolidation
The accompanying consolidated financial statements include the assets, liabilities, revenue and expenses of the Company’s wholly-owned subsidiary, Permex Petroleum US Corporation. All intercompany balances and transactions have been eliminated.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 2. | Significant Accounting Policies (cont’d…) |
Going concern of operations
These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company has incurred losses since inception in the amount of $14,717,569, has a working capital deficiency of $4,829,219 as of June 30, 2024 and has not yet achieved profitable operations. The Company requires equity financings to fund its operation, which it has been unable to secure in sufficient amounts to date, and there can be no assurances that it will be able to do so in the future. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company expects to raise additional funds through equity and debt financings. There are no written agreements in place for such funding or issuance of securities and there can be no assurance that such will be available in the future. During the quarter ended June 30, 2024, the Company raised $1,365,000 through the issuance of convertible debentures. Management believes that this plan provides an opportunity 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.
In view of these matters, continuation as a going concern is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to, meet its financial requirements, raise additional capital, and the success of its future operations. The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances.
Significant estimates have been used by management in conjunction with the following: (i) the fair value of assets when determining the existence of impairment factors and the amount of impairment, if any; (ii) the costs of site restoration when determining decommissioning liabilities; (iii) the useful lives of assets for the purposes of depletion and depreciation; (iv) petroleum and natural gas reserves; and (v) share-based payments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
New accounting standards
In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic740) Improvements to Income Tax Disclosures, which becomes effective for fiscal years beginning after December 15, 2024. The standard requires companies to disclose specific categories in the income tax rate reconciliation table and the amount of income taxes paid per major jurisdiction. The Company does not expect the standard to have a material effect on its consolidated financial statements and has begun evaluating disclosure presentation alternatives.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 3. | REVENUE |
Revenue from contracts with customers is presented in “Oil and gas sales” on the Consolidated Statements of Operations.
As of June 30, 2024 and September 30, 2023, receivable from contracts with customers, included in trade and other receivables, were $2,983 and $48,165, respectively.
The following table present our revenue from contracts with customers disaggregated by product type and geographic areas.
| Three months ended June 30, 2024 | Texas | New Mexico | Total | |||||||||
| Crude oil | $ | - | $ | - | $ | - | ||||||
| Natural gas | - | - | - | |||||||||
| Revenue | $ | - | $ | - | $ | - | ||||||
| Three months ended June 30, 2023 | Texas | New Mexico | Total | |||||||||
| Crude oil | $ | 113,471 | $ | 42,230 | $ | 155,701 | ||||||
| Natural gas | 1,015 | - | 1,015 | |||||||||
| Revenue | $ | 114,486 | $ | 42,230 | $ | 156,716 | ||||||
| Nine months ended June 30, 2024 | Texas | New Mexico | Total | |||||||||
| Crude oil | $ | 39,857 | $ | 35,609 | $ | 75,466 | ||||||
| Natural gas | - | - | - | |||||||||
| Revenue | $ | 39,857 | $ | 35,609 | $ | 75,466 | ||||||
| Nine months ended June 30, 2023 | Texas | New Mexico | Total | |||||||||
| Crude oil | $ | 417,050 | $ | 116,285 | $ | 533,335 | ||||||
| Natural gas | 8,124 | - | 8,124 | |||||||||
| Revenue | $ | 425,174 | $ | 116,285 | $ | 541,459 | ||||||
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 4. | CONCENTRATION OF CREDIT RISK |
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of its cash equivalents and trade receivables. The Company’s cash balances sometimes exceed the United States’ Federal Deposit Insurance Corporation insurance limits. The Company mitigates this risk by placing its cash and cash equivalents with high credit quality financial institutions and attempts to limit the amount of credit exposure with any one institution. To date, the Company has not recognized any losses caused by uninsured balances.
The majority of the Company’s receivable balance is concentrated in trade receivables, with a balance of $6,164 as of June 30, 2024 (September 30, 2023 - $73,021). For the nine months ended June 30, 2024 and 2023, we had two significant customers that accounted for approximately 100% and 92%, respectively, of our total oil, and natural gas revenues. For the three months ended June 30, 2024 and 2023, we had two significant customers that accounted for approximately nil% and 93%, respectively, of our total oil, and natural gas revenues. Two customers represented $nil (nil%) of the trade receivable balance. The Company routinely assesses the financial strength of its customers. The non-trade receivable balance consists of goods and services tax (“GST”) recoverable of $13,962. GST recoverable is due from the Canadian Government. It is in management’s opinion that the Company is not exposed to significant credit risk. During the nine months ended June 30, 2024, the Company recognized $9,587 (2023 - $nil) in credit losses on its receivables. During the three months ended June 30, 2024, the Company recognized $nil (2023 - $nil) in credit losses on its receivables.
| 5. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following:
| June 30, 2024 | September 30, 2023 | |||||||
| Oil and natural gas properties, at cost | $ | 10,501,244 | $ | 10,501,244 | ||||
| Less: accumulated depletion | (305,706 | ) | (289,456 | ) | ||||
| Oil and natural gas properties, net | 10,195,538 | 10,211,788 | ||||||
| Other property and equipment, at cost | 205,315 | 205,315 | ||||||
| Less: accumulated depreciation | (94,263 | ) | (55,684 | ) | ||||
| Other property and equipment, net | 111,052 | 149,631 | ||||||
| Property and equipment, net | $ | 10,306,590 | $ | 10,361,419 | ||||
Depletion and depreciation expense was $54,829 and $120,459 for the nine month periods ended June 30, 2024 and 2023, respectively. Depletion and depreciation expense was $14,875 and $37,286 for the three month periods ended June 30, 2024 and 2023, respectively.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 6. | LEASES |
All of the Company’s right-of-use assets are operating leases related to its office premises. Details of the Company’s right-of-use assets and lease liabilities are as follows:
| June 30, 2024 | September 30, 2023 | |||||||
| Right-of-use assets | $ | 96,058 | $ | 146,912 | ||||
| Lease liabilities | ||||||||
| Balance, beginning of the year | $ | 158,525 | $ | 244,906 | ||||
| Addition | - | - | ||||||
| Liability accretion | 12,346 | 24,221 | ||||||
| Lease payments | (61,542 | ) | (110,602 | ) | ||||
| Balance, end of the year | $ | 109,329 | $ | 158,525 | ||||
| Current lease liabilities | $ | 78,791 | $ | 77,069 | ||||
| Long-term lease liabilities | $ | 30,538 | $ | 81,456 | ||||
| Weighted-average remaining lease term (in years) | 1.42 | 2.17 | ||||||
| Weighted-average discount rate | 12 | % | 12 | % | ||||
The following table presents the Company’s total lease cost.
| Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | |||||||||||||
| Operating lease cost | $ | 20,573 | $ | 27,704 | $ | 63,200 | $ | 92,947 | ||||||||
| Variable lease expense | 15,469 | 22,516 | 45,905 | 48,513 | ||||||||||||
| Sublease income | - | (12,367 | ) | - | (32,762 | ) | ||||||||||
| Net lease cost | $ | 36,042 | $ | 37,853 | $ | 109,105 | $ | 108,698 | ||||||||
As of June 30, 2024, the Company has one office lease agreement for its office premises for terms ending in November 2025. The maturities of the Company’s operating lease liabilities are as follows:
| Year | ||||
| 2024 | $ | 20,648 | ||
| 2025 | 84,664 | |||
| 2026 | 14,180 | |||
| Total lease payments | 119,492 | |||
| Less: imputed interest | (10,163 | ) | ||
| Total lease liabilities | $ | 109,329 | ||
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 7. | ASSET RETIREMENT OBLIGATIONS |
Asset retirement obligations reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with the Company’s oil and gas properties. Changes to the asset retirement obligations are as follows:
| June 30, 2024 | September 30, 2023 | |||||||
| Asset retirement obligations, beginning of the year | $ | 260,167 | $ | 236,412 | ||||
| Obligations derecognized | - | (287 | ) | |||||
| Revisions of estimates | - | (7,934 | ) | |||||
| Accretion expense | 27,594 | 31,976 | ||||||
| $ | 287,761 | $ | 260,167 | |||||
During the year ended September 30, 2023, the Company had revision of estimates totaling $7,934 primarily due to changes in future cost estimates and retirement dates for its oil and gas assets. During the year ended September 30, 2023, the Company incurred plugging and abandonment costs of $66,354 and recognized a loss of $66,067 on the settlement.
Reclamation deposits
As of June 30, 2024, the Company held reclamation deposits of $75,000 (September 30, 2023 - $145,000), which are expected to be released after all reclamation work has been completed with regard to its oil and natural gas interests. During the nine months ended June 30, 2024, the Company redeemed $70,000 in reclamation deposits.
| 8. | DEBT |
Convertible debentures
During the three months ended June 30, 2024, the Company completed private placement financings of 1,365 convertible debenture units (each a “Unit”) for gross proceeds of $1,365,000. Each Unit is comprised of one secured convertible debenture in the principal amount of $1,000 and 294 common share purchase warrants. Each warrant is exercisable for a period of five years from the date of issuance for one common share of the Company at an exercise price of $4.08. As a result, the Company issued convertible debentures with an aggregate principal amount of $1,365,000 and 401,310 Warrants.
The Company allocated the proceeds received from the issuance of the convertible debentures and warrants between the debt and equity components based on their relative fair values at the issuance date. Due to the lack of an active market for the Company’s privately placed debt instruments and the absence of relevant observable inputs, the Company determined that a reliable estimate of the fair value of the convertible debentures could not be obtained. Accordingly, the face value of the debentures is considered to be a reasonable approximation of their fair value at the issuance date. The fair value of the warrants issued was determined using the Black-Scholes option pricing model (assuming a risk-free interest rate of 3.41%, an expected life of 5 years, annualized volatility of 128.69% and a dividend rate of 0%). The portion allocated to the warrants was recorded as additional paid-in capital. The resulting debt discount of $678,531 was recognized as debt expense in the statement of operations and comprehensive loss.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 8. | DEBT (cont’d…) |
The Convertible Debentures will mature on the earlier of: (i) one-year from the date of issuance or (ii) three-months from the date of issuance if the Company does not enter into a securities exchange, unit purchase or merger agreement with a third party to the reasonable satisfaction of a majority of the holders of Debentures. The Convertible Debentures are secured by the Company’s assets, bear simple interest at a rate of 10% per annum, payable on the maturity date or the date on which all or any portion of the Convertible Debenture is repaid, and are convertible into common shares of the Company at a conversion price of $3.40 per share. Interest will be paid in cash or shares based on a conversion price of $3.40.
As June 30, 2024, the following Convertible Debentures were outstanding:
| Principal Amount | Interest rate | Maturity Date | ||||||
| 500,000 | 10 | % | September 12, 2024 | |||||
| 865,000 | 10 | % | September 12, 2024 | |||||
| 1,365,000 | ||||||||
Loans payable
During the nine months ended June 30, 2024, the Company received a $45,000 loan from a former director of the Company. The loan is unsecured, non-interest bearing, and has no specific repayment terms.
On April 28, 2023, the Company issued a promissory note with a principal amount of $209,497 to a supplier to settle an outstanding trade payable. The promissory note is unsecured and bears interest at 6% per annum, payable on September 30. 2023. At June 30, 2024, the Company has an outstanding unpaid principal amount of $115,936 (September 30, 2023 - $125,936).
Convertible debenture – Related party
As of September 30, 2022, the Company had a debenture loan of $73,000 (CAD$100,000) from the former CEO of the Company outstanding. During the year ended September 30, 2022, the Company repaid $34,709 of the loan (CAD$47,546). During the year ended September 30, 2023, the Company repaid the remaining principal loan amount of $38,291 (CAD$52,454). During the years ended September 30, 2023, the Company recorded interest of $1,182.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 9. | RELATED PARTY TRANSACTIONS |
| i) | The Company entered into an employment agreement with Bradley Taillon, the Company’s CEO, on April 29, 2024, for an annual base salary of base salary of $250,000, which shall be reviewed by the Company annually. Subject to the discretion of the board of directors, Mr. Taillon is also eligible on an annual basis for a cash bonus of up to 100% of annual salary and additional performance bonuses ranging from $50,000 to $750,000 upon the closing of a qualified financing with proceeds to the Company of $1 million or greater. Further, the terms of this employment agreement provide that if Mr. Taillon’s employment with the Company is terminated without “cause” (as defined in the agreement) than Mr. Taillon is entitled to a severance payment equal to two years of base salary and a bonus equal to 50% of his annual base salary. During the three and nine month ended June 30, 2024, the Company incurred management salary of $59,812 and a one-time sign-on bonus of $50,000 for Mr. Taillon. | |
| ii) | The Company has an employment agreement with Mehran Ehsan, the former CEO of the Company, for an annual base salary of $250,000, with no specified term. Mr. Ehsan is also eligible on an annual basis for a cash bonus of up to 100% of annual salary, subject to the discretion of the board of directors. During the nine month ended June 30, 2024, the Company incurred management salary of $187,500 (2023 - $187,500), for Mr. Ehsan, with no bonuses incurred in either period. During the three month ended June 30, 2024, the Company incurred management salary of $62,500 (2023 - $62,500), for Mr. Ehsan. Further, the terms of this employment agreement provide that if Mr. Ehsan’s employment with the Company is terminated without “cause” (as defined in the agreement) than Mr. Ehsan is entitled to a severance payment equal to three years of base salary and a bonus equal to 20% of his annual base salary. Mr. Ehsan resigned as President and CEO of the Company on April 29, 2024. On May 15, 2024, the Company amended the employment agreement to change his role to Vice President of Business Development. All other terms and conditions of the employment agreement remain the same. The Company considers this a related party transaction, as it relates to key management personnel and entities over which it has control or significant influence. | |
| iii) | On May 1, 2022, the Company entered into an employment agreement with the CFO of the Company for an annual base salary of $50,000, with no specified term. The CFO is also eligible on an annual basis for a cash bonus of up to 100% of annual salary, subject to the discretion of the board of directors. The employment agreement may be terminated with a termination payment equal to two months of base salary. During the nine months ended June 30, 2024, the Company incurred management salary of $37,500 (2023 - $37,500), to the CFO of the Company, with no bonuses incurred in either period. During the three months ended June 30, 2024, the Company incurred management salary of $12,500 (2023 - $12,500). The Company considers this a related party transaction, as it relates to key management personnel and entities over which it has control or significant influence.
| |
| iv) | The convertible debenture loan from the former CEO of the Company mentioned in Note 8 was paid off during the nine months ended June 30, 2023. |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 10. | LOSS PER SHARE |
The calculation of basic and diluted loss per share for the three and nine month periods ended June 30, 2024 and 2023 was based on the net losses attributable to common shareholders. The following table sets forth the computation of basic and diluted loss per share:
| Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | |||||||||||||
| Net loss | $ | (1,349,957 | ) | $ | (1,452,827 | ) | $ | (2,517,193 | ) | $ | (3,873,341 | ) | ||||
| Weighted average common shares outstanding | 551,503 | 491,036 | 551,503 | 485,779 | ||||||||||||
| Basic and diluted loss per share | $ | (2.45 | ) | $ | (2.96 | ) | $ | (4.56 | ) | $ | (7.97 | ) | ||||
For the three and nine months ended June 30, 2024, 16,980 stock options and 676,663 warrants were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive. For the three and nine months ended June 30, 2023, 20,313 stock options and 279,746 warrants were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive.
| 11. | EQUITY |
Common stock
The Company has authorized an unlimited number of common shares with no par value. At June 30, 2024 and September 30, 2023, the Company had 551,503 common shares issued and outstanding after giving effect to the 4:1 reverse stock split effective October 23, 2023. All issued and outstanding common stock, options, and warrants to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect the reverse stock split.
There were no share issuance transactions during the three and nine months ended June 30, 2024.
During the year ended September 30, 2023, the Company announced a warrant exercise incentive program (the “Program”) whereby the Company amended the exercise prices of 253,966 warrants (the “Eligible Warrants”) from $50.40 per share to $11.44 per share if the holders of the Eligible Warrants exercised the Eligible Warrants before June 30, 2023 (the “Program Period”). In addition to the repricing, the Company offered, to each warrant holder who exercised the Eligible Warrants during the Program Period, the issuance of one additional common share purchase warrant for each warrant exercised during the Program Period (each, an “Incentive Warrant”). Each Incentive Warrant entitles the warrant holder to purchase one common share of the Company for a period of 5 years from the date of issuance, at a price of $18.00 per Share.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 11. | EQUITY (cont’d…) |
On June 30, 2023, the Company issued 68,353 common shares at a price of $11.44 per share from the exercise of the Eligible Warrants pursuant to the Program for gross proceeds of $781,953 (net proceeds of $645,330). In connection with the Program, the Company issued 68,353 Incentive Warrants. The Company also incurred $62,556 and issued 5,470 warrants as a finders’ fee to its investment bank. The finder’s warrants are on the same terms as the Incentive Warrants. The Incentive Warrants and finder’s warrants were valued at $449,005 and $35,919, respectively, using the Black-Scholes option pricing model (assuming a risk-free interest rate of 3.68%, an expected life of 5 years, annualized volatility of 128.81% and a dividend rate of 0%). The repricing of the Eligible Warrants is accounted for as a modification under ASC 815-40-35-14 through 18. The effect of the modification is $544,164, measured as the excess of the fair value of the repriced warrants over the fair value of the original warrants immediately before it was modified and the fair value of the incentive warrants issued as an additional inducement to exercise the warrants. The fair values were measured using the Black-Scholes option pricing model (assuming a risk-free interest rate of 4.21%, an expected life of 3.75 years, annualized volatility of 137.62% and a dividend rate of 0%). The Company recognized a deemed dividend of $543,234 for the fair value of the Incentive Warrants and the portion of inducement related to the equity-classified warrants. The effect of the repricing of the liability-classified warrants was $930 and was recorded in the statement of operations and comprehensive loss. The Company also incurred legal and other expenses of $74,066 in connection with the Program.
Share-based payments
Stock options
The Company has a stock option plan (the “Plan”) in place under which it is authorized to grant options to executive officers and directors, employees and consultants. Pursuant to the Plan, the Company may issue aggregate stock options totaling up to 10% of the issued and outstanding common stock of the Company. Further, the Plan calls for the exercise price of each option to be equal to the market price of the Company’s stock as calculated on the date of grant. The options can be granted for a maximum term of 10 years and vest at the discretion of the Board of Directors at the time of grant.
Stock option transactions are summarized as follows:
| Number of options | Weighted Average Exercise Price | |||||||
| Balance, September 30, 2022 | 21,146 | $ | 53.04 | |||||
| Cancelled | (833 | ) | 42.62 | |||||
| Balance, September 30, 2023 | 20,313 | $ | 54.23 | |||||
| Cancelled | (3,333 | ) | 59.94 | |||||
| Balance, June 30, 2024 | 16,980 | $ | 53.11 | |||||
| Exercisable at June 30, 2024 | 16,980 | $ | 53.11 | |||||
The aggregate intrinsic value of options outstanding and exercisable as at June 30, 2024 was $nil (September 30, 2023 - $nil).
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 11. | EQUITY (cont’d…) |
The options outstanding as of June 30, 2024 have exercise prices in the range of $8.88 to $88.80 and a weighted average remaining contractual life of 5.93 years.
During the three and nine months ended June 30, 2024, the Company recognized $nil share-based payment expense. During the three and nine months ended June 30, 2023, the Company recognized share-based payment expense of $nil and $318, respectively, for the portion of stock options that vested during the period.
As June 30, 2024, the following stock options were outstanding:
| Number of Options | Exercise Price | Issuance Date | Expiry Date | |||||||
| 4,480 | $ | 88.88 | December 4, 2017 | December 4, 2027 | ||||||
| 1,250 | $ | 53.28 | November 1, 2018 | November 1, 2028 | ||||||
| 1,250 | $ | 8.88 | March 16, 2020 | March 16, 2030 | ||||||
| 10,000 | $ | 42.62 | October 6, 2021 | October 6, 2031 | ||||||
| 16,980 | ||||||||||
Warrants
Warrant transactions are summarized as follows:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Balance, September 30, 2022 | 274,276 | $ | 48.48 | |||||
| Exercised | (68,353 | ) | 11.44 | |||||
| Granted | 73,823 | 18.00 | ||||||
| Balance, September 30, 2023 | 279,746 | $ | 39.79 | |||||
| Granted | 401,310 | 4.08 | ||||||
| Expired | (4,393 | ) | 95.90 | |||||
| Balance, June 30, 2024 | 676,663 | $ | 18.25 | |||||
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2024
(UNAUDITED)
| 11. | EQUITY (cont’d…) |
As June 30, 2024, the following warrants were outstanding:
| Number of Warrants | Exercise Price | Issuance Date | Expiry Date | |||||||
| 149,447 | $ | 50.40 | March 29, 2022 | March 29, 2027 | ||||||
| 73,823 | $ | 18.00 | June 30, 2023 | June 30, 2028 | ||||||
| 147,000 | $ | 4.08 | April 16, 2024 | April 16, 2029 | ||||||
| 254,310 | $ | 4.08 | June 12, 2024 | June 12, 2029 | ||||||
| 52,083 | $ | 35.52 | September 30, 2021 | September 30, 2031 | ||||||
| 676,663 | ||||||||||
22,059 warrants issued with private placement units during fiscal 2022 have an exercise price denominated in CAD. These warrants were initially valued at $202,009 using the Black-Scholes option pricing model (assuming a risk-free interest rate of 0.98%, an expected life of 2 years, annualized volatility of 153.02% and a dividend rate of 0%) and recorded as a warrant liability. These warrants were subsequently revaluated and a gain on fair value adjustment of $178,509 was recorded during the year ended September 30, 2022. During the year ended September 30, 2023, a gain on fair value of $23,500 was recorded. These warrants expired on November 4, 2023. The following weighted average assumptions were used for the Black-Scholes valuation of warrants as at September 30, 2023:
| September 30, 2023 | ||||
| Risk-free interest rate | 4.87 | % | ||
| Expected life of options | 0.17 Year | |||
| Expected annualized volatility | 39.02 | % | ||
| Dividend rate | Nil | |||
| Weighted average fair value of options granted | $ | 0.00 | ||
| 12. | SEGMENT INFORMATION |
Operating segments
The Company operates in a single reportable segment – the acquisition, development and production of oil and gas properties in the United States.
| 13. | CONTINGENCIES |
The Company from time to time may be involved with disputes, claims and litigation related to the conduct of its business. The Company currently has $455,447 in claims from certain trade vendors for non-payment, of which $446,783 have been accrued as of June 30, 2024. The Company plans to continue engaging with these claimants faithfully and is working on potentially settlements for all outstanding claims.
Exhibit 99.2
FORM 51-102F1
MANAGEMENT DISCUSSION AND ANALYSIS
For the Three and Nine Months Ended June 30, 2024
Introduction
This Management’s Discussion and Analysis (“MD&A”) has been prepared by the management of Permex Petroleum Corporation (“Permex” or the “Company”) as of August 29, 2024, and should be read in conjunction with the unaudited interim consolidated financial statements and related notes of the Company for the three and nine month period ended June 30, 2024, and the audited consolidated financial statements of the Company together with the related notes thereto for the year ended September 30, 2023. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All amounts are stated in United States dollars unless otherwise indicated.
Additional information related to the Company and its operations is available on SEDAR at www.sedarplus.ca and on the Company web site at www.permexpetroleum.com.
Forward-Looking Statements
This Report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined at the beginning of this Report under “Cautionary Notice Regarding Forward-Looking Statements” the risks outlined under the heading “Risk Factors” in our annual report on Form 10-K for the fiscal year ended September 30, 2023 and in our other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statements. All amounts in this report are in U.S. dollars, unless otherwise noted.
Reserve engineering is a method of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of previous estimates. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas and oil that are ultimately recovered.
Company Overview
The Company was incorporated on April 24, 2017 under the laws of British Columbia, Canada. The Company is an independent energy company engaged in the acquisition, exploration, development and production of oil and gas properties on private, state and federal land in the United States, primarily in the Permian Basin which includes the Midland Basin and Delaware Basin. The Company focuses on acquiring producing assets at a discount to market, increasing production and cash-flow through recompletion and re-entries, secondary recovery and lower risk infill drilling and development. Currently, the Company owns and operates various oil and gas properties located in Texas and New Mexico. In addition, the Company holds various royalty interests in 73 wells and 5 permitted wells across 3,800 acres within the Permian Basin of West Texas and southeast New Mexico. Moreover, the Company has more than 11,700 net acres of producing oil and gas assets, 62 shut-in opportunities, and 17 salt water disposal wells allowing for waterflood secondary recovery.
The Company’s common shares are listed on the Canadian Securities Exchange under the symbol “OIL”, and on the Frankfurt Stock Exchange under the symbol “75P”. On April 16, 2024, the Company received a cease trade order issued by the British Columbia Securities Commission (the “BCSC”) due to its failure to file the annual financial statements for fiscal 2023 and quarterly reports for fiscal 2024. The trading was halted on the CSE effective April 17, 2024. The Company has brought all required filings up to date and is currently working on the revocation of the FFCTO.
Key activities:
| ● | On October 23, 2023, the Company effected a 1-for-4 reverse split of the Company’s outstanding common shares. |
| ● | On February 28, 2024, the Company announced a private placement of convertible debenture units of the Company (the “Units”) for gross proceeds of up to $20,000,000. Each Unit will consist of one convertible debenture (a “Debenture”) in the principal amount of $1,000 and one common share purchase warrant (a “Warrant”). Each Warrant will be exercisable for a period of five years from the date of issuance for one common share of the Company (a “Share”) at an exercise price of $4.08. On May 29, 2024, the Company amended the terms of the Units. Each Unit will now consist of one convertible debenture (a “Debenture”) in the principal amount of $1,000 and 294 common share purchase warrants (each a “Warrant”). Each Warrant will be exercisable for a period of five years from the date of issuance for one common share of the Company (a “Share”) at an exercise price of $4.08. The Debentures will mature (the “Maturity Date”) on the earlier of: (i) one-year from the date of issuance or (ii) three-months from the date of issuance if the Company does not enter into a securities exchange, unit purchase or merger agreement with a third party to the reasonable satisfaction of a majority of the holders of Debentures. The Debentures will bear simple interest at a rate of 10% per annum, payable on the Maturity Date or the date on which all or any portion of the Debenture is repaid, and have a conversion price of $3.40 per share. Interest will be paid in cash or Shares based on a conversion price of $3.40. |
| ● | On April 16, 2024, the Company announced the closing of the first tranche of the private placement announced on February 28, 2024, consisting of 500 Units for gross proceeds of $500,000. As a result, the Company issued a Debenture with a principal amount of $500,000 and 147,000 Warrants. |
| ● | On May 1, 2024, the Company announced the appointment of Bradley Taillon as the President and Chief Executive Officer (“CEO”) of the Company. Mehran Ehsan, the former President and CEO of the Company, will now serve as Vice President of Business Development. |
| ● | On May 29, 2024, the Company announced that it has applied to the British Columbia Securities Commission (the “BCSC”) for a partial revocation of the failure-to-file cease trade order that was issued by the BCSC against the Company on April 16, 2024 (the “FFCTO”) for failing to file certain outstanding continuous disclosure documents in a timely manner (the “Partial Revocation Order”). |
| ● | On June 16, 2024, the Company announced the closing of the second tranche of the private placement announced on February 28, 2024, consisting of 865 Units for gross proceeds of $865,000. As a result, the Company issued a Debenture with a principal amount of $865,000 and 254,310 Warrants. The Second Tranche was conducted pursuant to a partial revocation order (the “Partial Revocation Order”) issued by the BCSC on June 5, 2024. The Partial Revocation Order partially revoked the FFCTO that was issued by the BCSC against the Company on April 16, 2024 for failing to file certain outstanding continuous disclosure documents in a timely manner. The FFCTO continues to apply in all other respects. The Company intends to use the proceeds of the Second Tranche to prepare and file all outstanding financial statements and continuous disclosure records, pay all outstanding related fees and penalties, pay outstanding amounts owing pursuant to summary judgments and to continue operations until it can apply for and receive a full revocation of the FFCTO. If and when the Company has filed all such outstanding financial statements and continuous disclosure records, the Company intends to apply for a full revocation of the FFCTO and request that trading of its Shares on the CSE be reinstated. |
| ● | On June 27, 2024, the Company announced the appointment of Bradley Taillon, the President and CEO, to the Company’s Board of Directors. As a part of Permex’s strategic reconstitution and expansion of the Board, the Company also announced the resignations of Melissa Folz, Barry Whelan, James Perry Bryan, Mehran Ehsan, Douglas Charles Urch and John James Lendrum from the Board of Directors. |
| ● | On August 27, 2024, the Company announced the appointment of Richard Little and Kevin Nanke to serve on the Board effective as of August 26, 2024. |
Oil And Gas Properties
Breedlove “B” Clearfork Leases - Texas
In September 2021, the Company, through its wholly-owned subsidiary, Permex Petroleum US Corporation, acquired a 100% Working Interest and an 81.75% Net Revenue Interest in the Breedlove “B” Clearfork leases located in Martin County, Texas. The Breedlove “B” Clearfork properties situated in Martin County, Texas are over 12 contiguous sections for a total of 7,870.23 gross and 7,741.67 net acres, of which 98% is held by production in the core of the Permian Basin. It is bounded on the north by Dawson County, on the east by Howard County, on the south by Glasscock and Midland Counties, and on the west by Andrews County. There is a total of 25 vertical wells of which 12 are producers, 4 are saltwater disposal wells and 9 that are shut-in opportunities. In January 2022, the Company began the pilot re-entry on the Carter Clearfork well #5, which is one of 67 shut-in wells that it currently owns. The re-entry involved targeting the Clearfork formation at a depth of 7,200 feet. Due to the high water content, management plans to maximize utilization of existing injection wells on the property when putting the well on line. By doing so management plans to reduce operating expenses from water disposal in third party disposal facilities. During fiscal 2023, the Company engaged in various operating activities across the Breedlove assets including the completion and production of the Eoff #3 well that was completed in November 2022. The Eoff #3 was put online fully following the build out of production facilities, tank battery, etc. The Eoff #3 was subsequently shut in due to maintenance issues that were deferred due to financing efforts being undertaken by the Company. The Eoff #3 is currently available to resume production potentially as a top recomplete candidate for the Company, pending successful capital raising efforts. The Company is currently evaluating a number of re-entry opportunities across this asset including the 9 currently shut-in wells as well as opportunities across the existing producing wells.
Pittcock Leases - Texas
The Pittcock Leases are situated in Stonewall County. Stonewall County is in Northwest Texas, in the central part of the North Central Plains and consists of the Pittcock North property, the Pittcock South property and the Windy Jones Property. It is bounded on the north by King County, on the east by Haskell County, on the south by Fisher and Jones Counties, and on the west by Kent County. The Pittcock North property covers 320 acres held by production. There is currently one producing well, ten shut-in wells, two saltwater disposal wells, and a water supply well. The Company holds a 100% working interest in the Pittcock North Property and an 81.25% net revenue interest. The Pittcock South property covers 498 acres in four tracts. There are currently 19 shut-in wells and two saltwater disposal wells. The Company holds a 100% working interest in the lease and a 71.90% net revenue interest. The Windy Jones Property consists of 40 acres and includes two injection wells and two suspended oil wells. The sole purpose of the Windy Jones property is to provide waterflood assistance to the offset wells being the Pittcock wells located east boundary of the Windy Jones Property. The Company holds a 100% working interest in the Windy Jones Property and a 78.9% net revenue interest.
Mary Bullard Property - Texas
The Company acquired the Mary Bullard Property in August 2017 for a cash consideration of approximately $50,000. The Mary Bullard Property is located in Stonewall County, about 5 ½ miles south west of Aspermont, Texas. It is bounded on the north by King County, on the east by Haskell County, on the south by Fisher and Jones Counties, and on the west by Kent County. The asset is situated on the Eastern Shelf of the Midland Basin in the central part of the North Central Plains. The Mary Bullard Property covers 241 acres held by production and is productive in the Clearfork formation at a depth of approximately 3,200 feet. There is currently one producing well, four shut-in wells, and two water injection wells. The Company holds a 100% working interest in the Mary Bullard Property and a 78.625% net revenue interest.
West Henshaw Property - New Mexico
The West Henshaw Property is located in Eddy County, New Mexico, 12 miles northeast of Loco Hills in the Delaware Basin. Eddy County is in Southeast New Mexico. It is bounded by Chaves County to the north, Otero County to the east, Loving County, Texas to the south, and Lea County to the west. The West Henshaw Property covers 1,880 acres held by production. There are two producing wells, seven shut-in wells and four saltwater disposal wells. The Company holds a 100% working interest in the West Henshaw Property and a 72% net revenue interest.
In January 2022, the Company began the pilot re-entry on the West Henshaw well #15-3, one out of the 67 shut-in wells it currently owns. The re-entry and re-stimulation involved the West Henshaw property targeting the Grayburg formation at a depth of 2,850 feet. The recompletion was successful and came online at an initial rate of 30 bopd and has stabilized at 15 bopd.
In April 2022, the Company began the re-entry on the West Henshaw well #6-10. The re-entry and re-stimulation involved the West Henshaw property targeting the Grayburg formation at a depth of 2,850 feet. The recompletion was successful and came online at an initial rate of 15 bopd and has stabilized at 10 bopd. Throughout 2023, the Company completed a number of re-entry and basic workover efforts to try and establish more steady production from the West Henshaw assets.
The remaining 67 shut-in wells that the Company plans to re-enter have potential to yield similar results increasing our total daily production solely by re-entering shut-in wells.
Oxy Yates Property - New Mexico
The Oxy Yates Property is located in Eddy County, approximately eight miles north of Carlsbad, New Mexico in the Delaware Basin. It is bounded by Chaves County to the north, Otero County to the east, Loving County, Texas to the south, and Lea County to the west. The Oxy Yates Property covers 680 acres held by production. There is one producing well and nine shut-in wells. The Yates formation is located at an average depth of 1,200 feet and overlies the Seven River formation and underlies the Tansill formation. The Company holds a 100% working interest in the Oxy Yates Property and a 77% net revenue interest.
Royalty Interest Properties
The Company holds royalty interests in 73 producing oil and gas wells located in Texas and New Mexico.
Conversion of Undeveloped Acreage
The Company’s process for converting undeveloped acreage to developed acreage is tied to whether there is any drilling being conducted on the acreage in question. The Company has started development and conversion of its undeveloped acreage located in Martin County, Texas. The PPC Eoff #3 well, operated by Permex Petroleum, is the first of two permitted wells to be drilled by the Company on the 7,780 gross acre Breedlove oilfield. Drilling of the first well commenced on September 14, 2022. Management expects to restart its drilling and development program in the second half of 2024, subject to receipt of additional funding.
An aggregate of 1,609 MBO and 1,277 MMCF, of the Company’s proved undeveloped reserves as of September 30, 2023, are part of a development plan that has been adopted by management that calls for these undeveloped reserves to be drilled within the next five years, thus resulting in the conversion of such proved undeveloped reserves to developed status within five years of initial disclosure at September 30, 2023. Management currently anticipates spending approximately $1.25 million in capital expenditures towards developing the Company’s proved undeveloped reserves during the 2024 fiscal year, subject to the Company acquiring the necessary financing.
Financing of Proved and Probable Undeveloped Reserves
The Company currently estimates that the total cost to develop the Company’s proved undeveloped reserves of 1,609.7 MBbl of oil and 1,277.1 Mcf of natural gas as of September 30, 2023 is $15,710,000. The Company expects to finance these capital costs through a combination of current cash on hand, debt financing through a line of credit or similar debt instrument, one or more offerings of debt or equity, and from cash generated from estimated revenues from sales of oil and natural gas produced at the Company’s wells.
The Company currently estimates that the total cost to develop the Company’s probable undeveloped reserves of 9,290.4 MBbl of oil and 10,882.8 Mcf of natural gas as of September 30, 2023 is $134,428,500. The Company expects to finance these capital costs through a combination of joint ventures, farm-in agreements, direct participation programs, one or more offerings of equity, a debt offering or entering into a line of credit, and from cash generated from estimated revenues from sales of oil and natural gas produced at the Company’s wells.
Drilling Activities
The Company drilled one well during the last three fiscal years. As at September 30, 2023, the Company had 103 gross wells and 23 net productive wells. The Company’s gross developed acreage totaled 5,177 and net developed acreage totaled 3,942 with the following property breakdown:
| Property | Gross Developed Acreage | Net Developed Acreage | Gross Productive Wells | Net Productive Wells | ||||||||||||
| Pittcock | 818 | 664.63 | 1 | 0.81 | ||||||||||||
| Henshaw | 1,880 | 1,353.60 | 8 | 5.76 | ||||||||||||
| Oxy Yates | 680 | 489.60 | 5 | 3.60 | ||||||||||||
| Bullard | 241 | 187.98 | 1 | 0.78 | ||||||||||||
| Breedlove | 1,558 | 1,246.40 | 15 | 12.00 | ||||||||||||
| Royalty Interest Properties | — | — | 73 | 0.01 | ||||||||||||
The Company has 6,000 gross undeveloped acres and 4,800 net undeveloped acres. All of the Company’s undeveloped acreage is on the Company’s Breedlove property.
The Company’s leases are nearly entirely held by production in perpetuity. If a field/lease is undeveloped it typically has a 2, 3 or 5 year term of expiry. The Company has over 340 leases covering undeveloped acreage and less than 5% of these leases have an active expiry date that is less than two years from the date of this Report.
Results of Operations
Sales and Production
The average sales prices of the Company’s oil and gas products sold in the nine months ended June 30, 2024 and 2023, and the fiscal year ended September 30, 2023 was $72.14/Boe, $72.59/Boe, and $71.45/Boe, respectively. The average sales prices of the Company’s oil and gas products sold in the three months ended June 30, 2024 and 2023 was $nil/Boe and $66.91/Boe, respectively.
The Company’s net production quantities by final product sold in the nine months ended June 30, 2024 and 2023, and the fiscal year ended September 30, 2023 was 1,470.20 Boe, 10,260.71 Boe, and 12,979.36 Boe, respectively. The Company’s net production quantities by final product sold in the three months ended June 30, 2024 and 2023 was nil Boe and 3,258.07 Boe, respectively.
The Company’s average production costs per unit for the nine months ended June 30, 2024 and 2023, and the fiscal year ended September 30, 2023, was $112.44/Boe, $74.33/Boe, and $67.76/Boe, respectively. The Company’s average production costs per unit for the three months ended June 30, 2024 and 2023 was $nil/Boe and $72.29/Boe, respectively.
The breakdown of production and prices between oil/condensate and natural gas was as follows:
| Net Production Volumes | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | ||||||||||||
| Oil/Condensate (Bbl) | - | 3,022 | 1,470 | 9,589 | ||||||||||||
| Natural Gas (Mcf) | - | 1,418 | - | 4,030 | ||||||||||||
| Average Sales Price | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | ||||||||||||
| Oil/Condensate ($/Bbl) | - | 70.29 | 72.14 | 75.49 | ||||||||||||
| Natural Gas ($/Mcf) | - | 3.95 | - | 5.20 | ||||||||||||
The breakdown of the Company’s production quantities by individual product type for each of the Company’s fields that contain 15% or more of the Company’s total proved reserves expressed on an oil-equivalent-barrels basis was as follows:
Breedlove
| Net Production Volumes | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | ||||||||||||
| Oil/Condensate (Bbl) | - | 1,961 | 735 | 6,534 | ||||||||||||
| Natural Gas (Mcf) | - | 1,418 | - | 4,030 | ||||||||||||
Henshaw
| Net Production Volumes | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | ||||||||||||
| Oil/Condensate (Bbl) | - | 898 | 735 | 2,385 | ||||||||||||
| Natural Gas (Mcf) | - | - | - | - | ||||||||||||
Pittcock & Mary Bullard
| Net Production Volumes | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | ||||||||||||
| Oil/Condensate (Bbl) | - | 163 | - | 670 | ||||||||||||
| Natural Gas (Mcf) | - | - | - | - | ||||||||||||
Operating Results
Three Months Ended June 30, 2024 and 2023
During the three months ended June 30, 2024, the Company reported a net loss of $1,349,957, compared to a net loss of $909,593 for the same quarter in 2023. The increase in loss in 2024 was mostly as a result of lower revenue and higher interest and debt expenses, which more than offset the reduction in operating expenses during the third quarter of fiscal 2024.
The Company reported oil and gas sales revenue of $nil in the third quarter of the current fiscal year compared to $156,716 in the same quarter of the previous fiscal year. The decrease in revenue is due to the shutdown of oil and gas production across all fields, resulting from financial constraints that impacted field operations. Net oil-equivalent production by final product sold in the current quarter was nil, compared to 35.80 barrels per day in the same quarter of last year.
The Company’s total operating expenses for the three months ended June 30, 2024 was $664,330 compared to $1,069,450 for the same period in 2023. Lease operating expenses decreased to $10,421 from $235,511 in the comparative period due to the production shutdown. General and administrative expenses for the three month period ended June 30, 2024 were $629,836, compared to $788,659 for the same quarter in the prior fiscal year. The decrease in accounting, audit and legal fees is attributable to a reduction in overall activity. Investor relations and marketing expenses also decreased as management scaled back these efforts. However, consulting fees increased as the Company engaged a consultant for merger and acquisition activities. Additionally, salaries rose due to the appointment of a new CEO during the quarter, with an annual salary of $250,000 and a one-time sign-on bonus of $50,000.
General and administrative expenses
Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | |||||||||||||
| Accounting and audit | $ | 103,250 | $ | 174,931 | $ | 247,697 | $ | 697,109 | ||||||||
| Consulting | 80,550 | 29,823 | 147,707 | 172,698 | ||||||||||||
| Filing and transfer agent | 10,047 | 15,002 | 40,212 | 64,305 | ||||||||||||
| Insurance | 69,497 | 45,316 | 131,139 | 190,556 | ||||||||||||
| Investor relations | 4,631 | 72,816 | 73,145 | 245,841 | ||||||||||||
| Legal fees | 72,051 | 156,359 | 349,111 | 545,911 | ||||||||||||
| Marketing and promotion | 9,360 | 88,643 | 45,076 | 388,050 | ||||||||||||
| Office and miscellaneous | 26,011 | 22,745 | 110,157 | 138,968 | ||||||||||||
| Rent | 36,042 | 37,853 | 109,106 | 108,697 | ||||||||||||
| Salaries and benefits | 214,376 | 112,339 | 391,728 | 329,940 | ||||||||||||
| Share-based payments | - | - | - | 318 | ||||||||||||
| Travel | 4,021 | 32,832 | 29,660 | 131,914 | ||||||||||||
| $ | 629,836 | $ | 788,659 | $ | 1,674,738 | $ | 3,014,307 | |||||||||
Nine Months Ended June 30, 2024 and 2023
During the nine months ended June 30, 2024, the Company reported a net loss of $2,517,193 compared to a net loss of $3,330,107 for the same period in 2023. The net loss for the first nine months of current fiscal year was mainly attributable to operating expenses of $1,922,466 compared to operating expenses of $3,921,416 in the prior year, and interest and debt expense of $694,470, up from $2,208 in 2023. These losses were partially offset by revenue from oil and gas sales and royalty income of $86,656, compared to $559,599 in the same period of fiscal 2023. Of the total interest and debt expense, $678,531 represents the portion of the proceeds from the debenture financing that was allocated to the warrants issued as part of the financing.
The Company reported oil and gas sales revenue of $75,466 in the first nine months of the current fiscal year compared to $541,459 in the same period last year. The decrease was due to reduced oil and gas production across all fields, resulting from financial constraints that impacted field operations. Net oil-equivalent production by final product sold in the current period averaged 5.39 barrels per day, compared with 37.59 barrels per day in the same period of the previous fiscal year.
The lease operating expenses for the nine months ended June 30, 2024 were $165,305 compared with $762,668 in the nine months ended June 30, 2023. The decrease in lease operating expenses is attributed to reduced production in the current period compared to the same period in the previous fiscal year. Lease operating expenses exceeded oil and gas sales revenue mainly due to significant maintenance expenses on the West Henshaw wells.
General and administrative expenses for the nine months ended June 30, 2024 were $1,674,738, compared with $3,014,307 in the nine months ended June 30, 2023. The significant reduction is mainly due to the decreased property development and corporate activities during the current period, as management scaled back operations in response to tighter financial constraints. Specifically, the variance from the prior year was mainly attributable:
| ● | Accounting and audit fees of $247,697, which decreased from $697,109 in the first nine months of the prior fiscal year. The decrease was largely due to a significant decrease in overall activities. A substantial portion of the fees in the current period was related to regulatory compliance work associated with the U.S. uplisting in November 2023. |
| ● | Legal fees of $349,111 in the current period, down from $545,911 in the same period of the prior fiscal year. The legal fees mainly related to the regulatory work associated with the Company’s proposed uplisting to the NASDAQ in November 2023 as well as compliance with the disclosure requirements under the Exchange Act in the United States. |
| ● | Marketing, investor relations, news and media, and promotion expenses of $85,288 in the current period, compared to $633,891 in the same period of the previous fiscal year. The reduction was due to the Company scaling back marketing and promotion activities. |
| ● | Salaries and benefits for the current period totaled $391,728, compared to $329,940 in the previous year. Of this amount, $340,594 was allocated to management salaries, an increase from $252,305 in 2023, while $51,134 was spent on administrative salaries, down from $77,635 in the previous year. The increase in management salaries was due to the appointment of a new CEO in April 2024, with an annual salary of $250,000 and a one-time sign-on bonus of $50,000. |
| ● | Travel expenses of $29,660 in the current period compared to $131,914 in the same period of the previous fiscal year. The reduction was due to reduced travel by management for marketing and promotion activities.
|
Update on Use of Proceeds
During the nine months ended June 30, 2024, the Company completed two tranches of the private placement of convertible debenture units for gross proceeds of $1,365,000. The net proceeds were intended for potential mergers and acquisitions, general working capital, preparing and filing all outstanding financial statements and continuous disclosure records, paying revocation related legal and filing fees, settling outstanding amounts under certain claim judgments.
As of the date of this report, the Company had utilized $1,284,400 of the net proceeds. The following table provides a comparison of the Company’s disclosed expected use of net proceeds and the actual use of such proceeds.
Offering Net Proceeds $1,365,000
Intended Use of Net Proceeds: Mergers and acquisitions, accounting and audit, revocation related legal and filing fees, claim judgement payments, and general working capital
Actual Use of Net Proceeds ($) | Variance – (Over)/Under Expenditures | Explanation of Variance | ||||||
| Accounting and audit related to outstanding filings | $ | 284,000 | N/A | N/A | ||||
| Claim judgement payments | $ | 209,615 | N/A | N/A | ||||
| Potential mergers and acquisitions | $ | 124,000 | N/A | N/A | ||||
| Revocation legal and filing fees | $ | 61,915 | N/A | N/A | ||||
| General working capital | $ | 604,870 | N/A | N/A | ||||
| Total | $ | 1,284,400 | ||||||
| Net proceeds remaining | $ | 80,600 | ||||||
Summary of Quarterly Results
The following table sets forth selected unaudited financial information for the Company’s eight most recent quarters ending with the last quarter for the three month period ended June 30, 2024.
| For the Three Months Ended | ||||||||||||||||||||||||||||||||
| Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | ||||||||||||||||||||||||||||||
| Jun. 30, 2024 | Mar. 31, 2024 | Dec. 31, 2023 | Sept. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Dec. 31, 2022 | Sept. 30, 2022 | |||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||
| Total revenues | 2,671 | 30,870 | 53,115 | 129,228 | 157,019 | 180,638 | 221,942 | 253,402 | ||||||||||||||||||||||||
| Net income (loss) | (1,349,957 | ) | (415,355 | ) | (751,881 | ) | (609,854 | ) | (1,452,827 | ) | (1,111,323 | ) | (1,309,191 | ) | (916,831 | ) | ||||||||||||||||
| Earnings (loss) per share - basic and diluted | (2.45 | ) | (0.75 | ) | (1.36 | ) | (1.11 | ) | (2.96 | ) | (2.30 | ) | (2.71 | ) | (1.90 | ) | ||||||||||||||||
Factors That Affect the Comparability of the Annual Financial Data Disclosed Above
Net losses for the quarters were mainly attributable to operating expenses, partially offset by revenue from oil and gas sales and royalty income. The operating expenses remained generally consistent from fiscal Q4 2022 to Q2 of fiscal 2023 following the Company’s completion of $8 million in private placement financings on March 30, 2022. The Company has scaled back activities in the last four quarters due to financial constraints. Oil and gas sales revenue was generally consistent for fiscal 2022 and the first three quarters of fiscal 2023 but has decreased in the last three quarters due to financial constraints. In Q4 2024, production of oil and gas was shut down across all fields. The significant increase in the loss for Q4 2024 was due to the recognition of a debt expense of $678,531, representing the portion of debenture financing proceeds allocated to the warrants issued as part of the financing.
Liquidity and Capital Resources
As at June 30, 2024, the Company had a cash balance of $428,385, an increase of $345,649 from the cash balance of $82,736 on September 30, 2023. During the nine months ended June 30, 2024, cash used in operating activities was $1,124,351, primarily covering accounting, insurance, salary and general office expenses. The Company received $1,365,000 from debenture financings, $70,000 from reclamation deposit redemption, and $45,000 from a related party loan, while repaying $10,000 on a third-party loan.
The Company had working capital deficiency of $4,829,219 as at June 30, 2024 compared to working capital deficiency of $3,142,916 as at September 30, 2023. The Company will need substantial additional funding to pay the outstanding payables and bring the operated assets back to production. The company has decreased its activity to a minimal level to minimize the expected increases in additional balances to the working capital deficiency. The company has dramatically limited its ongoing commitments and account demands going forward and expects a meaningful reduction in the rate of increase of the working capital deficiency account. Additionally, the company is actively engaging with its trade partners to remedy its working capital deficiency through all means available to it including but not limited to financing arrangements, payment plans, and principal reductions.
Management has budgeted approximately $1.5 million in minimum operating expenses and $0.5 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 as well as invest in additional oil and gas production activities across the company’s assets. This capital is not fully contractually committed and can be adjusted as necessary based on economic or business factors. The amount and timing of capital expenditures will depend on several factors including, but not limited to, the speed with which we are able to bring our wells to production, our ability to complete an equity financing or to secure a suitable line of credit, commodity prices, supply/demand considerations and attractive rates of return. There are no guarantees that we will be able to acquire the necessary funds to meet our budgeted capital expenditures, and any postponement of our planned development of our proved undeveloped reserves could materially affect our business, financial condition and results of operations.
Although the Company has budgeted investments of additional capital in the continued development of our oil and gas operations, the Company currently does not have any material commitments for capital expenditures. As of the date of this MD&A for the nine months ended June 30, 2024, the Company does not have sufficient working capital to meet its anticipated operating and capital requirements over the next 12 months, and, consequently, the Company is currently evaluating options to support our funding requirements over this time period, including but not limited to, completing a financing transaction. The Company will also continue to monitor the current economic and financial market conditions and evaluate their impact on the Company’s liquidity and future prospects.
Critical Accounting Estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. We believe the following discussions of critical accounting estimates address all important accounting areas where the nature of accounting estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change.
Oil and natural gas reserves
Crude oil and natural gas reserves are estimates of future production that impact certain asset and expense accounts included in the consolidated financial statements. Proved reserves are the estimated quantities of oil and gas that geoscience and engineering data demonstrate with reasonable certainty to be economically producible in the future under existing economic conditions, operating methods and government regulations. Proved reserves include both developed and undeveloped volumes. Proved developed reserves represent volumes expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are volumes expected to be recovered from new wells on undrilled proved acreage, or from existing wells where a relatively major expenditure is required for recompletion. Variables impacting the Company’s estimated volumes of crude oil and natural gas reserves include field performance, available technology, commodity prices, and development, production and carbon costs.
The estimation of proved reserves is important to the consolidated statements of operations because the proved reserve estimate for a field serves as the denominator in the unit-of-production calculation of the depletion of the capitalized costs for that asset. If the estimates of proved reserves used in the unit-of-production calculations had been lower by 10 percent across all calculations, the depletion in fiscal 2023 would have increased by an estimated $13,000.
Impairment
The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, generally on a field-by-field basis for oil and gas assets. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates and prices believed to be consistent with those used by principal market participants. The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future production volumes, commodity prices, operating costs and capital decisions, considering all available evidence at the date of review. Differing assumptions could affect the timing and the amount of an impairment in any period.
Asset retirement obligations
The Company is subject to retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the Corporation uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation, technical assessments of the assets, estimated amounts and timing of settlements, discount rates, and inflation rates.
A sensitivity analysis of the ARO impact on earnings for 2023 is not practicable, given the broad range of the company’s long-lived assets and the number of assumptions involved in the estimates. Favorable changes to some assumptions would have reduced estimated future obligations, thereby lowering accretion expense and amortization costs, whereas unfavorable changes would have the opposite effect.
Related party transactions
| (a) | The Company entered into an employment agreement with Bradley Taillon, the Company’s CEO, on April 29, 2024, for an annual base salary of base salary of $250,000, which shall be reviewed by the Company annually. Subject to the discretion of the board of directors, Mr. Taillon is also eligible on an annual basis for a cash bonus of up to 100% of annual salary and additional performance bonuses ranging from $50,000 to $750,000 upon the closing of a qualified financing with proceeds to the Company of $1 million or greater. Further, the terms of this employment agreement provide that if Mr. Taillon’s employment with the Company is terminated without “cause” (as defined in the agreement) than Mr. Taillon is entitled to a severance payment equal to two years of base salary and a bonus equal to 50% of his annual base salary. During the three and nine month ended June 30, 2024, the Company incurred management salary of $59,812 and a one-time sign-on bonus of $50,000 for Mr. Taillon. |
| (b) | The Company has an employment agreement with Mehran Ehsan, the former CEO of the Company, for an annual base salary of $250,000, with no specified term. Mr. Ehsan is also eligible on an annual basis for a cash bonus of up to 100% of annual salary, subject to the discretion of the board of directors. During the nine month ended June 30, 2024, the Company incurred management salary of $187,500 (2023 - $187,500), for Mr. Ehsan, with no bonuses incurred in either period. During the three month ended June 30, 2024, the Company incurred management salary of $62,500 (2023 - $62,500), for Mr. Ehsan. Further, the terms of this employment agreement provide that if Mr. Ehsan’s employment with the Company is terminated without “cause” (as defined in the agreement) than Mr. Ehsan is entitled to a severance payment equal to three years of base salary and a bonus equal to 20% of his annual base salary. Mr. Ehsan resigned as President and CEO of the Company on April 29, 2024. On May 15, 2024, the Company amended the employment agreement to change his role to Vice President of Business Development. All other terms and conditions of the employment agreement remain the same. The Company considers this a related party transaction, as it relates to key management personnel and entities over which it has control or significant influence. |
| (c) | On May 1, 2022, the Company entered into an employment agreement with the CFO of the Company for an annual base salary of $50,000, with no specified term. The CFO is also eligible on an annual basis for a cash bonus of up to 100% of annual salary, subject to the discretion of the board of directors. The employment agreement may be terminated with a termination payment equal to two months of base salary. During the nine months ended June 30, 2024, the Company incurred management salary of $37,500 (2023 - $37,500), to the CFO of the Company, with no bonuses incurred in either period. During the three months ended June 30, 2024, the Company incurred management salary of $12,500 (2023 - $12,500). The Company considers this a related party transaction, as it relates to key management personnel and entities over which it has control or significant influence. |
| (d) | The convertible debenture loan from the CEO of the Company mentioned in Note 8 was paid off during the nine months ended June 30, 2023. |
Outstanding Share Data
The Company had the following common shares, stock options and warrants outstanding as at the date of this report:
| Issued and Outstanding Common shares | 551,503 | |||
| Stock options | 16,980 | |||
| Warrants | 676,663 | |||
| 1,245,146 |
As of the date of this report, the Company also has convertible debentures of $1,365,000 convertible into 401,471 common shares.
Contingencies
The Company from time to time may be involved with disputes, claims and litigation related to the conduct of its business. The Company currently has $455,447 in claims from certain trade vendors for non-payment, of which $446,783 have been accrued as of June 30, 2024. The Company plans to continue engaging with these claimants faithfully and is working on potentially settlements for all outstanding claims.
Changes In Accounting Policies Including Initial Adoption
In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic740) Improvements to Income Tax Disclosures, which becomes effective for fiscal years beginning after December 15, 2024. The standard requires companies to disclose specific categories in the income tax rate reconciliation table and the amount of income taxes paid per major jurisdiction. The Company does not expect the standard to have a material effect on its consolidated financial statements and has begun evaluating disclosure presentation alternatives.
Disclosure Controls
In connection with Exemption Orders issued by each of the securities commissions across Canada, the Chief Executive Officer and Chief Financial Officer of the Company will file a Venture Issuer Basic Certificate with respect to the financial information contained in the audited annual financial statements and respective accompanying Management’s Discussion and Analysis.
In contrast to the certificates under National Instrument (“NI”) 52-109 (Certification of disclosure in an Issuer’s Annual and Interim Filings), the Venture Issuer Basic Certification does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting as defined in NI 52-109.
Approval
The Board of Directors of Permex Petroleum Corporation has approved the contents of this management discussion and analysis on August 29, 2024.