Executive Summary / Key Takeaways

• Strategic Pivot Underway: Trio Petroleum is executing a significant strategic shift, divesting from high-cost California oil and gas operations (e.g., McCool Ranch abandonment) to focus on more economically viable heavy oil assets in Saskatchewan, Canada, which offer immediate cash flow and lower operational costs.
• Early Canadian Success & Growth Potential: The recent Novacor acquisition in Saskatchewan has immediately contributed to revenue, with management indicating potential to double production through workovers and boasting competitive lift costs of $10 per barrel.
• Persistent Liquidity Challenges: Despite recent capital raises, the company faces substantial doubt about its ability to continue as a going concern, necessitating further equity or debt financing to fund ongoing operations and development.
• Long-Term Vision in Carbon Capture: TPET is exploring a Carbon Capture and Storage (CCS) project at its South Salinas asset, leveraging unique geological formations for large-scale CO2 storage, positioning itself for future environmental initiatives.
• Competitive Headwinds & Niche Focus: As a smaller player, TPET faces intense competition from larger, more technologically advanced, and financially robust industry giants, requiring its regional expertise and low-cost asset focus to drive market share.

Trio Petroleum's Evolving Energy Footprint & Strategic Imperative

Trio Petroleum Corp. (TPET) was founded in July 2021 with an initial focus on oil and gas exploration and development in California, particularly the 9,300-acre South Salinas Project. The company acquired an 85.78% working interest in this flagship asset, aiming to develop its potential. While the HV-3A discovery well at South Salinas began producing oil in March 2024, it is currently idled as the company assesses viability for increased production and potential joint ventures. This early history set the stage for TPET's initial foray into revenue generation, which commenced in the fiscal quarter ended April 30, 2024.

However, the landscape of California's oil and gas sector presented significant economic hurdles. High natural gas prices and prohibitive water disposal costs rendered operations at the McCool Ranch Oil Field uneconomical, leading to its abandonment in May 2025 and a $500,614 write-off of capitalized costs. Similarly, other South Salinas leases were abandoned, incurring a $73,806 expense, signaling a decisive shift away from California's challenging operating environment. This strategic pivot underscores TPET's agility in adapting to market realities, prioritizing economic viability over initial geographic focus.

The Competitive Arena: Battling Giants and Niche Players

TPET operates in a fiercely competitive oil and gas exploration and production industry, contending with a diverse array of players ranging from global giants to specialized regional firms. Compared to industry titans like Baker Hughes (BKR) and Devon Energy (DVN), TPET is a significantly smaller entity, holding an estimated 0.1-0.5% market share in U.S. oil and gas exploration. This limited scale translates into inherent disadvantages, including higher operating costs and weaker cash flow generation compared to its larger counterparts. For instance, TPET's estimated operating costs per unit may be 15-20% higher than those of technologically superior firms like BKR, which leverage advanced drilling and production tools for greater efficiency.

Despite these challenges, TPET cultivates specific competitive advantages. Its regional regulatory expertise, particularly in California, has historically enabled faster project approvals and potentially quicker time-to-market, which could translate to 5-10% higher margins through accelerated revenue generation in specific niche opportunities. Furthermore, the company's focus on a low-upfront cost structure for certain projects aims for 20% lower initial capital expenditures, a strategy that could yield 5-10% superior gross margins compared to some mid-cap competitors like Hallador Energy (HNRG), which operates with established but potentially less flexible infrastructure.
The recent acquisition of Novacor assets in Saskatchewan highlights a key competitive differentiator: the ability to secure assets with inherently low operational costs. Management has noted that Novacor was "one of the lowest cost operators with lift costs of $10.00 per barrel." This cost efficiency is crucial in a volatile commodity market, providing a buffer against price fluctuations and enabling competitive pricing. While TPET's overall profitability metrics, such as its TTM Net Profit Margin of -4047.74%, starkly contrast with DVN's robust 18% net margin, the strategic acquisition of low-cost assets is a direct response to these competitive pressures, aiming to improve future financial performance.

Indirect competitors, such as renewable energy firms, pose a long-term threat by offering increasingly cheaper and sustainable energy alternatives. This broader industry trend could reduce demand for fossil fuels, potentially impacting TPET's revenue by 10-20% if adoption accelerates. TPET's current fossil fuel focus makes it more exposed to this shift than diversified players. The company's strategic pivot to lower-cost production and its nascent Carbon Capture and Storage (CCS) initiative are critical steps to mitigate these long-term competitive and industry-wide risks.

Operational Advantages and Future Vision

TPET's operational advantages are increasingly centered on its newly acquired Canadian assets. The Lloydminster, Saskatchewan heavy oil region offers "economic development and low operational costs," coupled with "market accessibility combined with a favorable regulatory process." This is a tangible benefit, directly impacting the cost structure and potential profitability of the company's current operations. The five currently active wells are all located in this region, and management believes the Canadian project "has the potential through workovers to double production." This operational efficiency, driven by the inherent characteristics of the acquired assets and the ability to enhance existing wells, represents a critical differentiator in a cost-sensitive industry.

Beyond conventional production, TPET is embarking on a forward-looking initiative with its Carbon Capture and Storage (CCS) project at the South Salinas asset. While not a direct revenue generator yet, this initiative leverages the unique geological characteristics of the South Salinas Project, which features "thick geologic zones (e.g., Vaqueros Sand, up to approximately 500.00 thick about two miles deep)" capable of storing "vast volumes of CO2." Four existing deep wells are identified as candidates for CO2 injection, with three positioned on idle pipelines for CO2 import. The stated goal is to "reduce our own carbon footprint" and potentially establish a "CO2 storage hub and/or Direct Air Capture (DAC) hub." This strategic move positions TPET to capitalize on emerging environmental markets and potentially attract partnerships with third parties seeking to reduce their greenhouse gas emissions. While specific quantifiable targets for the CCS project are not yet disclosed, its strategic intent is clear: to diversify future revenue streams and enhance the company's long-term sustainability profile.

Financial Performance: A Transition in Progress

TPET's financial performance for the three and six months ended April 30, 2025, reflects a company in transition. Revenues, net, decreased significantly to $23,271 for the three months ended April 30, 2025, down from $72,923 in the prior-year period. This decline is primarily attributable to the cessation of operations at the McCool Ranch field, which generated all prior-period revenue from approximately 2,100 barrels of oil. Current revenues are derived from the sale of approximately 550 barrels of oil from the newly acquired Saskatchewan assets, indicating the early stages of revenue contribution from the new strategic focus. For the six months ended April 30, 2025, total oil sales were $34,090, compared to $72,923 in the corresponding prior-year period.
The company continues to report substantial net losses, with a net loss of $1.56 million for the three months and $3.18 million for the six months ended April 30, 2025. This contributes to an accumulated deficit of $23.25 million as of April 30, 2025. However, there are notable improvements in expense management. General and administrative expenses decreased by approximately $0.70 million for the three months and $1.00 million for the six months, driven by reductions in advertising, legal fees, and salaries. Stock-based compensation also saw a decrease of approximately $0.40 million for the three months and $0.30 million for the six months, primarily due to the final vesting of certain restricted shares. Other expenses, net, decreased by approximately $1.40 million for the three months and $1.30 million for the six months, largely due to a reduction in non-cash interest expense from lower debt levels and the absence of a large note conversion loss recorded in the prior period. These expense reductions, while significant, were partially offset by a $0.60 million loss incurred from the abandonment of oil and gas properties in the current period.

Liquidity and the Path Forward

As of April 30, 2025, TPET reported a cash balance of $1.46 million but faced a working capital deficit of $531,983. The company's operations have historically been funded through a mix of common stock issuances, various debt financings, and an at-the-market (ATM) agreement, which provided approximately $3.40 million in cash proceeds for current assets. While these efforts have provided necessary capital, management has explicitly stated that these conditions "raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these condensed consolidated financial statements."
The company's current revenue streams are insufficient to cover its operating costs, making it dependent on external financing to sustain operations. Management anticipates the need to issue additional equity to fund operations for the foreseeable future. This capital is crucial for drilling planned wells at the South Salinas and Asphalt Ridge assets, as well as covering ongoing development and operating costs until planned revenue streams are fully implemented and begin to offset expenses. The success of the strategic pivot to Canadian assets and the realization of their production potential are paramount to improving the company's liquidity profile.

Outlook and Strategic Initiatives: Building for Tomorrow

TPET's forward-looking strategy is anchored in the potential of its newly acquired Canadian assets. The Canadian project, with its low lift costs of $10.00 per barrel, is expected to be a significant cash flow generator. Management has indicated the potential "through workovers to double production" from these assets, which could substantially boost revenue and operational cash flow in the coming periods. The company plans to integrate the reserve values of these Saskatchewan fields into its reserve report following further observation, which will allow for the estimation of necessary depreciation, depletion, and amortization.

In Utah, while the option to acquire an additional 17.75% working interest in the Asphalt Ridge Leases expired in May 2025, TPET retains its existing 2.25% interest. Furthermore, the company has entered into a non-binding Letter of Intent (LOI) to acquire 2,000 acres at P.R. Spring, Utah, adjacent to Asphalt Ridge. This potential acquisition is contingent on "evidence of a minimum sustained production rate of 40.00 barrels per day for a continuous 30.00-day period from two wells at Asphalt Ridge by May 15.00, 2026." This target provides a concrete operational milestone for investors to monitor, indicating the company's commitment to proving out the potential of its Utah assets.

The Carbon Capture and Storage (CCS) project at South Salinas represents a long-term strategic initiative. By leveraging the deep geological formations and existing infrastructure, TPET aims to establish a CO2 storage and potentially a Direct Air Capture (DAC) hub. This initiative aligns with broader industry trends towards decarbonization and could open new revenue streams or strategic partnerships in the future. The company believes it is feasible to develop the oil and gas resources of the South Salinas Project concurrently with establishing this CCS project, showcasing a dual-pronged approach to asset utilization.

Risks to the Thesis

The investment thesis for TPET is subject to several significant risks. Foremost among these is the substantial doubt regarding the company's ability to continue as a going concern, driven by its accumulated deficit and insufficient current revenues to cover operating costs. The reliance on future equity or debt financing introduces significant uncertainty, as there is no guarantee that such capital will be available on favorable terms or at all.

Operational risks are also prominent. While the Canadian assets offer promising low lift costs and production potential, the ability to "double production" through workovers requires successful execution and sustained performance. The contingent nature of the P.R. Spring acquisition, tied to specific production targets, adds another layer of operational risk. Furthermore, the company remains exposed to the inherent volatility of global oil and natural gas prices, which can significantly impact cash flow and profitability. Changes in regulatory environments, particularly in California, have already forced strategic shifts and could continue to pose challenges to remaining assets or future initiatives like the CCS project.

Conclusion

Trio Petroleum Corp. is at a pivotal juncture, actively transforming its operational footprint by shedding high-cost California assets and embracing the promising heavy oil region of Saskatchewan, Canada. This strategic pivot, marked by the immediate revenue contribution and low operational costs of the Novacor acquisition, forms the core of the investment thesis, offering a clearer path to sustainable cash flow. Concurrently, the company's long-term vision for a Carbon Capture and Storage project in California demonstrates an adaptive approach to evolving energy markets and environmental considerations.

However, the path forward is not without considerable challenges, particularly concerning liquidity and the need for continuous capital infusion. The successful execution of its Canadian expansion, the realization of production targets in Utah, and the prudent management of its capital structure will be critical determinants of TPET's ability to overcome its going concern risks and establish itself as a viable, growing player in the dynamic energy sector. Investors should closely monitor production ramp-up in Saskatchewan and the progress of future financing efforts as key indicators of the company's trajectory.