Executive Summary / Key Takeaways

• Laredo Oil, Inc. (LRDC) is an oil exploration and production company with a specialized focus on recovering "stranded oil reserves" from mature fields using its proprietary Underground Gravity Drainage (UGD) method. This technology is central to its investment thesis, promising lower costs and materially increased production rates compared to conventional Enhanced Oil Recovery (EOR) methods.
• The company faces significant financial and operational hurdles, evidenced by a substantial decline in revenue to $9,423 in fiscal year 2025 and persistent net losses. Its "going concern" status remains a critical risk, necessitating continuous capital raises.
• Despite operational setbacks with conventional drilling in Montana, Laredo Oil is actively pursuing funding for its UGD projects, noting increased investor interest in 2025 due to a changing climate for U.S.-based energy projects.
• LRDC operates in a niche, competing against much larger, better-capitalized integrated energy companies like Exxon Mobil (XOM) and Chevron (CVX), which possess superior scale, diversified operations, and stronger financial health. LRDC's competitive edge lies in its specialized UGD technology, but its smaller size and funding dependency are significant disadvantages.
• The company's outlook hinges on successfully securing additional funding to develop its UGD projects and bring uneconomical wells into profitable production, particularly for its West Fork exploratory drilling.

The Unconventional Play: Laredo Oil's UGD Advantage in a Mature Market

Laredo Oil, Inc. (LRDC) operates in the dynamic and capital-intensive oil exploration and production sector, distinguishing itself with a focused strategy on mature oil fields. The company's core business revolves around acquiring these fields and deploying its proprietary Underground Gravity Drainage (UGD) method to recover "stranded oil reserves"—oil previously considered uneconomical to extract. This specialized approach positions Laredo Oil as a niche player, aiming to unlock value where conventional methods fall short.

The company's journey began in March 2008 as Laredo Mining, Inc., initially focused on mineral property acquisition and exploration. A pivotal strategic shift occurred in October 2009, when the company rebranded as Laredo Oil, Inc. and committed to its UGD methodology. This focus was significantly bolstered by the December 2020 acquisition of Stranded Oil Resources Corporation (SORC) from Alleghany Corporation (AHY), which transferred critical intellectual property and operational expertise in UGD projects to Laredo Oil. This strategic move solidified the company's specialized know-how in evaluating, acquiring, operating, and developing oil and gas properties, particularly for enhanced recovery.

Laredo Oil's UGD technology is a key differentiator in the competitive energy landscape. This method involves establishing a drilling chamber beneath an existing oil field, from which closely spaced wellbores are drilled directionally upward into the reservoir. Residual radial pressure and gravity then facilitate the drainage of the targeted oil. The company asserts that the costs of implementing UGD are "significantly lower than those presently experienced by other commonly used Enhanced Oil Recovery (EOR) methods." Furthermore, Laredo Oil estimates it "can materially increase the field oil production rate from prior periods and recover amounts of oil equal to or greater than amounts previously recovered from selected mature fields." The company targets oil fields with a minimum of 25 million barrels of estimated recoverable oil, believing this approach results in "minimal disruption of oil production from our field investments." This technological advantage, if successfully scaled, could provide a substantial competitive moat by enabling cost-effective recovery in otherwise inaccessible reserves, enhancing margins, and improving market positioning in a specialized segment.

Competitive Dynamics and Market Positioning

Laredo Oil operates within a highly competitive industry, facing off against large, well-established companies with substantially greater capital resources. Direct competitors include integrated energy giants such as Exxon Mobil Corporation, Chevron Corporation, ConocoPhillips (COP), and Occidental Petroleum Corporation (OXY). These industry leaders boast diversified operations, extensive global reach, and robust financial health, allowing them to pursue large-scale projects and invest heavily in research and development.

Compared to these behemoths, Laredo Oil's market share is modest, positioning it as a specialized follower rather than a market leader. While Exxon Mobil and Chevron consistently demonstrate strong revenue growth, robust profitability margins, and superior cash flow generation, Laredo Oil's financial performance reflects its earlier stage and niche focus. For instance, Laredo Oil reported a negative net profit margin of -7309.53% and a negative operating profit margin of -8101.60% on a trailing twelve-month basis, starkly contrasting with the positive P/E and P/B ratios typically seen in its larger competitors, which indicate consistent profitability.

Laredo Oil's competitive advantage lies in its specialized UGD technology, which offers the potential for superior efficiency and lower costs in extracting stranded oil. This could attract projects that larger, less specialized competitors might overlook or find uneconomical. However, its smaller scale and reliance on external funding for development are significant competitive disadvantages. The company's ability to innovate quickly and adapt to market changes may also be constrained compared to rivals with vast R&D budgets. Indirect competitors, such as those in renewable energy like NextEra Energy (NEE) or electrical infrastructure firms like MYR Group Inc. (MYRG), also pose a long-term threat by facilitating the broader energy transition, potentially reducing overall demand for oil. This shift could pressure Laredo Oil's revenue opportunities, while larger competitors might be better equipped to diversify.

Financial Performance and Liquidity Challenges

Laredo Oil's financial performance for the fiscal year ended May 31, 2025, reflects significant operational challenges and a critical need for capital. Revenue plummeted to $9,423, a substantial decrease from $36,482 in the prior fiscal year. This sharp decline underscores the difficulties in achieving consistent production from its current assets. The company reported an operating loss of $3.32 million and a net loss of $3.18 million for fiscal year 2025, consistent with the prior year's operating loss of $3.39 million and net loss of $2.87 million.

Operating expenses saw a slight reduction to $3.33 million in fiscal year 2025 from $3.43 million in 2024. This decrease was primarily due to a $1 million reduction in stock-based compensation, partially offset by increased legal and accounting professional fees, including public relations, totaling $165,000, and a $201,118 rise in lease operating expenses, mainly from the Reddig 11-21 well. A significant long-term asset impairment loss of $653,874 was recognized on the Reddig 11-21 well in fiscal year 2025, up from $56,555 in 2024, as the well was shut in due to uneconomical production. Other income in fiscal year 2025 included $300,000 from the sale of a working interest in Hell Creek Crude and $328,702 from the Texakoma Development Agreement.

Liquidity remains a pressing concern. As of May 31, 2025, cash and cash equivalents and restricted cash stood at $277,367, a sharp drop from $1.99 million a year prior.

Total debt outstanding increased to $3.97 million from $3.21 million over the same period. The company explicitly states that its financial statements have been prepared on a "going concern basis," acknowledging that "routinely incurred losses since inception, resulting in an accumulated deficit," raise "substantial doubt about our ability to continue as a going concern within the one-year period." Management is actively seeking to raise funds through debt and equity issuances to support well development and operations. In fiscal year 2025, Laredo Oil sold 2.89 million shares of common stock for gross proceeds of $1.27 million. Subsequent to May 31, 2025, the company raised an additional $1.19 million through Subordinated Promissory Notes and warrants.

Operational Details and Strategic Outlook

Laredo Oil's operational focus in fiscal year 2025 centered on developing its UGD business model, which requires substantial investment. The company also continued conventional drilling efforts in Montana. While five wells drilled in the Lustre and Midfork fields with Texakoma have not been economically successful, primarily due to excessive water, exploratory drilling in the West Fork area is ongoing. The Reddig 11-21 well, despite producing some oil, was shut in due to uneconomical water production and is being evaluated for rework or conversion to a saltwater disposal well. The Olfert 11-4 well, drilled in 2023, also encountered excessive saltwater and has been shut in for three years, with its asset value reduced to zero.

Management's outlook is heavily tied to its ability to secure additional funding. The company is actively raising $7.50 million to drill three exploratory wells north of the Fort Peck Reservation, with $1 million already deployed for preliminary development in fiscal year 2025. Laredo Oil anticipates completing this funding by "early Fall 2025," which would provide "adequate funds to drill the three exploratory wells before year end and finish early in 2026, weather permitting." The company notes "increased interest from multiple investors/funds and oil field ownership interests in our UGD methods, both nationally and internationally," attributing this to a "change in the climate for U.S. based energy projects." This perceived shift is expected to facilitate future equity fundraising.

Risks and Challenges

The investment in Laredo Oil carries significant risks. The "going concern" warning is paramount, as the company's ability to secure continuous financing for its operations and well development is uncertain.

Operational risks are substantial, as demonstrated by the uneconomical production and impairment losses from multiple wells due to excessive saltwater. The success of future drilling, particularly in the West Fork area, is entirely dependent on securing the targeted $7.50 million in funding.

Furthermore, the company faces an internal control material weakness, with management concluding that as of May 31, 2025, there were "no full-time employees with the requisite expertise in the key functional areas of finance and accounting," leading to a "lack of proper segregation of duties." This raises concerns about financial reporting accuracy and timeliness. Market price volatility for oil and gas, which has fluctuated in the $70-85 per barrel range over the last two years, also presents an ongoing risk. The company's limited capital resources compared to larger competitors further exacerbates its vulnerability to market downturns and operational setbacks.

Conclusion

Laredo Oil, Inc. presents a compelling, albeit high-risk, investment thesis centered on its proprietary Underground Gravity Drainage (UGD) technology. This method offers a differentiated approach to recovering stranded oil from mature fields, with the potential for lower costs and increased production rates that could carve out a valuable niche in the energy sector. The company's history reflects a strategic pivot towards this innovative recovery method, reinforced by the acquisition of SORC and its specialized expertise.

However, Laredo Oil's financial health is precarious, marked by persistent losses, declining revenue, and a critical dependency on external financing, as highlighted by its "going concern" status. Operational challenges, particularly with uneconomical wells in Montana, underscore the difficulties in translating technological promise into consistent, profitable production. While management sees increased investor interest in UGD, the successful execution of its West Fork drilling program and the broader commercialization of its technology are contingent on securing substantial additional funding. For discerning investors, Laredo Oil represents a speculative opportunity, where the long-term potential of its UGD technology must be weighed against significant liquidity constraints, operational hurdles, and the intense competitive pressures from vastly larger industry players. The ability to overcome these financial and operational headwinds will be the ultimate determinant of Laredo Oil's future trajectory.