Executive Summary / Key Takeaways

• Norris Industries ($NRIS) is a small exploration and production (E&P) company focused on acquiring, developing, and maintaining crude oil and natural gas properties in specific Texas regions, aiming to leverage enhanced oil recovery (EOR) and niche acquisitions.
• The company faces significant financial challenges, reporting continuing losses and relying heavily on funding from its majority shareholder, JBB Partners, Inc., raising going concern risks without increased revenues or external financing.
• Recent financial performance for the year ended February 28, 2025, showed a slight decrease in revenue primarily due to lower production, alongside cost control efforts and increased interest expense from related-party debt.
• NRIS operates in a highly competitive landscape dominated by much larger, better-capitalized players like Diamondback Energy (FANG), Occidental Petroleum (OXY), Devon Energy (DVN), and Exxon Mobil (XOM), which possess superior scale, efficiency, and technological resources.
• The investment thesis hinges on the speculative potential for successful production increases through well workovers and EOR methods on existing leaseholds, or through future niche acquisitions, requiring substantial capital that is not currently secured from independent sources.

A Small Player in the Texas Oil Patch

Norris Industries, Inc. ($NRIS) operates as a micro-cap exploration and production company, carving out a focus on crude oil and natural gas properties within the vast Texas energy landscape. Incorporated in 2014, the company's early history involved acquiring working interests in joint ventures in Coleman County, later expanding its footprint into Kilgore City, Jack County, and Palo-Pinto County. A pivotal moment arrived in July 2017 with the change of control to Patrick Norris and JBB Partners, marking the beginning of significant reliance on related-party financing that continues to shape the company's financial structure.

NRIS's core strategy centers on the development and maintenance of its existing, primarily small-producing fields, complemented by a selective approach to acquiring additional properties with potential for enhanced recovery. Management believes that focusing on these smaller fields, often overlooked by larger operators, represents a key differentiator. The company holds approximately 4200 total gross acres in leaseholds across North Central and North East Texas, intending to concentrate its limited resources on these existing positions.

Technology and Operations: Seeking Efficiency in Niche Plays

In the technologically oriented oil and gas industry, NRIS aims to leverage available expertise to improve its operational outcomes. The company engages consultants for geoscience analysis to better understand reservoir characteristics and identify optimal zones for production enhancement. While the 10-K highlights the belief that current technology increases the success rate of finding commercial deposits, specific details on proprietary or highly differentiated technology with quantifiable performance metrics (like percentage improvements in yield or cost reduction per barrel) are not provided.

Instead, NRIS's technological approach appears focused on applying established methods and potentially "selective leading edge EOR technologies from technology vendors" to existing wells. This involves hiring drilling specialists, technical consultants, data collectors, and cementing operators to oversee drilling, re-entering wells, and well completion processes. The stated goal of applying EOR methods is to improve current revenues and assets by increasing initial production rates, ultimate recovery factors, and the rate of return on invested capital.

Operational plans for fiscal year 2025 include a period of assessment and work-over on existing wells, particularly on the Jack and Palo Pinto County acreages. The company continues to evaluate potential acquisitions but emphasizes that any such moves are contingent on market conditions, the economic outlook, and the ability to secure necessary capital.

Financial Performance: Navigating Persistent Losses

NRIS's financial performance reflects the challenges inherent in its early-stage development and the volatile nature of the oil and gas industry, particularly for smaller players. For the year ended February 28, 2025, the company reported total revenues from oil and gas sales of $329,334, a slight decrease from $329,610 in the prior year. This modest decline was primarily attributed to lower oil and gas production during the period.

Operating expenses saw some reduction, with lease operating expenses decreasing to $503,417 in FY2025 from $530,369 in FY2024, a change management linked to lower production levels. General and administrative expenses also saw a slight decrease to $189,611 from $200,787, reflecting management's implementation of cost controls. Depletion, depreciation, and accretion expense fell significantly to $54,675 from $114,827, primarily due to a change in accounting estimate and lower production.

Despite these cost adjustments, the company continues to incur net losses. The net loss for FY2025 was $561,574, an improvement from the $643,335 loss in FY2024. However, this reduction was primarily related to the lower production levels impacting depletion expense, rather than a fundamental shift to profitability. Interest expense increased to $143,205 in FY2025 from $126,962 in FY2024, a direct consequence of additional debt issuances from related parties.

Liquidity and Capital Structure: Reliance on Related-Party Funding

A critical aspect of the NRIS investment narrative is its precarious liquidity position and heavy reliance on related-party financing. The company has reported continuing losses since 2016 and requires external funding to cover operating expenses. As of February 28, 2025, NRIS had a cash balance of $85,627 and negative working capital of $13,505.

The primary source of funding has been JBB Partners, Inc., controlled by the company's Chief Executive Officer, Patrick Norris. While JBB has provided loans and credit lines, including advancing $400,000 in FY2025 and $300,000 in FY2024, there is no legal obligation for the principal shareholder to continue providing funding. As of February 28, 2025, the company had $400,000 available on its existing credit line with JBB.

The capital structure is significantly influenced by this relationship. As of February 28, 2025, there was $3.30 million outstanding under notes payable to JBB, down from $4.20 million in the prior year. This decrease is largely attributable to a significant transaction on November 19, 2024, where $1.30 million in outstanding notes and accrued interest held by JBB were converted into 17.36 million shares of common stock at a ratio of $0.08 per share. This conversion, while reducing debt, resulted in substantial dilution for existing shareholders.

The company explicitly states that it will require additional financing to support operations and pursue its acquisition program. It expects to seek this capital from sources other than JBB via restricted private placement sales of equity and debt securities for fiscal year ending February 28, 2026, if needed beyond the existing credit line. However, there is no assurance that such financing can be secured on acceptable terms or at all. The financial statements are prepared on a going concern basis, highlighting the risk that the company may have to curtail or cease operations if it cannot increase revenues or obtain funding.

Competitive Positioning: A Micro-Cap in a Giant's World

NRIS operates in a fiercely competitive oil and gas exploration and production market, particularly within Texas. Its competitors range from large, integrated global energy companies like Exxon Mobil to major independent producers such as Diamondback Energy, Occidental Petroleum, and Devon Energy. These larger players possess substantially greater financial, technical, and marketing resources, extensive lease access, and established buyer relationships.

While NRIS attempts to differentiate itself by focusing on smaller, potentially "under the radar" fields and shallow wells (sub-5000 feet) which management believes are less expensive and lower risk, its scale is a significant disadvantage. Larger competitors benefit from economies of scale, enabling potentially lower operating costs per unit and greater efficiency in applying advanced drilling and recovery techniques. For example, while precise comparative data is not available, the operational scale of companies like FANG or DVN in the Permian Basin suggests they can achieve significantly lower per-barrel costs through optimized logistics, supply chains, and drilling programs.

NRIS's reliance on "current generally available technology" and outside consultants, while strategic for a small firm, contrasts with the substantial R&D budgets and proprietary technologies employed by majors like XOM or even large independents like OXY, which are investing in areas like carbon capture and advanced data analytics for reservoir management.

The competitive pressure from these well-capitalized players can manifest in aggressive pricing policies, potentially forcing smaller operators like NRIS to offer discounts, thereby decreasing already thin or negative profit margins. NRIS's sales strategy of producing less when prices are low and more when high, and aiming for minimal inventory, is a tactical response to market volatility but does not fundamentally alter its position relative to competitors who can weather price swings more effectively due to diversified operations and stronger balance sheets.

The company's customer base relies on relationships with tier 1 buyers like BML, Transport Oil, Lion Oil Trading & Transportation (for oil) and WTG Jameson (for gas). While these relationships facilitate sales, they do not necessarily provide a competitive moat against larger producers who have long-standing, high-volume contracts with major refineries and pipelines.

Ultimately, NRIS's competitive standing is that of a micro-cap player attempting to find profitable niches in a market dominated by giants. Its success is highly dependent on identifying and efficiently developing properties that are genuinely uneconomical for larger firms, a challenging task given the technological advancements and operational efficiencies of its competitors.

Outlook and Forward Strategy

The outlook for NRIS remains challenging, heavily influenced by volatile commodity prices, global geopolitical instability, and the company's constrained financial position. Management anticipates continued revenue disruption and declines as a result of external conflicts and general economic conditions. The expectation is that the company may not be able to cover operating costs and will need to continue implementing cost-cutting measures and seeking operational financing.

The strategic focus for the near term is on assessing and performing workovers on existing wells, particularly in Jack and Palo Pinto Counties, which the company believes can be funded by existing cash and the available credit line with JBB for the next 12 months. Beyond this, the ability to fund higher operational losses or pursue acquisitions for fiscal year 2026 is contingent on securing additional capital, preferably from sources other than JBB, though no committed sources are identified.

The long-term objective remains to increase shareholder value by growing reserves, production, and cash flow through the development of existing assets and selective acquisitions, potentially including diversified, non-oilfield enterprises. However, the execution of this strategy is directly tied to the company's ability to overcome its significant financial hurdles and attract necessary investment in a competitive market.

Risks and Challenges

Investing in NRIS involves a high degree of risk, many of which are explicitly detailed by the company. Key risks include:

• Limited Operating History and Going Concern: The company has a limited track record of profitable operations and its ability to continue as a going concern is dependent on securing future funding or significantly increasing revenues.
• Dependence on Related-Party Funding: Heavy reliance on the principal shareholder (JBB Partners) for financing, with no assurance of continued support, poses a significant risk to future operations and growth.
• Commodity Price Volatility: Revenues are directly tied to volatile oil and gas prices, which are influenced by global supply, demand, geopolitical events, and economic conditions.
• Operational Risks: Hazards inherent in drilling, production, and transportation (blowouts, spills, equipment failure), potential for dry holes or low production wells, and the uncertainty of success with EOR methods.
• Competition: Operating against larger, better-capitalized competitors with superior resources and efficiency.
• Capital Requirements: Substantial capital is needed for development and acquisitions, and the inability to raise funds will limit growth and potentially force curtailment of operations.
• Regulatory and Environmental Risks: Changes in laws and regulations (including those related to hydraulic fracturing) could increase costs, limit activities, or result in litigation.
• Supply Chain Disruptions: Vulnerability to disruptions affecting suppliers, partners, and customers due to external events.
• Cybersecurity Risks: While deemed low risk by management, potential cyber incidents could still disrupt operations and lead to financial loss.
• Costs of Being a Public Company: Significant compliance costs that may be difficult for a small company with limited resources to absorb.

These risks collectively underscore the speculative nature of an investment in NRIS.

Conclusion

Norris Industries ($NRIS) presents a narrative of a micro-cap E&P company striving to unlock value in potentially overlooked Texas oil and gas fields. Its strategy, centered on developing existing assets through methods like EOR and pursuing niche acquisitions, offers a theoretical path to growth. However, this potential is overshadowed by significant and persistent financial challenges, marked by continuing losses and a critical dependence on related-party funding.

The company operates in a highly competitive environment where its scale and resources are dwarfed by major industry players. While its focus on shallow wells and under-the-radar assets represents a strategic attempt to find a niche, the execution requires substantial capital and operational efficiency that NRIS has yet to consistently demonstrate. The recent financial performance reflects the ongoing struggle, with lower production impacting revenues and the need for external financing remaining paramount.

The investment thesis for NRIS is highly speculative, contingent on the successful execution of its operational plans, the ability to secure necessary funding beyond its current related-party line of credit, and favorable movements in volatile commodity prices. Without a clear path to sustainable profitability and independent capital access, the risks to the company's going concern status remain material. Investors considering NRIS must weigh the potential upside from successful niche development against the significant financial, operational, and competitive headwinds the company currently faces.