As filed with the Securities and Exchange Commission on July 15, 2022October 25, 2023
Registration No. 333- 265883333-268191
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1AMENDMENT NO. 8
Toto
FORM S-1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PERMEX PETROLEUM CORPORATION
(Exact name of Registrant as specified in its charter)
British Columbia, Canada | 1381 | 98-1384682 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
100 Crescent Court, 2911 Turtle Creek Blvd, Suite 700925
Dallas, Texas 7520175219
(214) 459-2782(469)804-1306
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Mehran Ehsan
Permex Petroleum Corporation
100 Crescent Court,2911 Turtle Creek Blvd, Suite 700925
Dallas, Texas 7520175219
(214) 459-2782(469) 804-1306
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Andrew J. Bond, Esq. | Rob Condon, Esq. | |
Nazia J. Khan, Esq. | Dentons US LLP | |
Sheppard, Mullin, Richter & Hampton LLP | 1221 Avenue of the Americas | |
1901 Avenue of the Stars, Suite 1600 Los Angeles, CA 90067 | New York, New York 10020 Telephone: (212) 768-6700 | |
Telephone: (310) 228-3700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer☒ | Smaller reporting company ☒ | |||
Emerging growth company ☒ |
If 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 to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. The selling shareholdersThese securities may not sell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED |
98,970,113Up to 1,900,000 Common Units, Each Consisting of a Common Share and a Warrant to Purchase One Common Share
Up to 1,900,000 Pre-funded Units, Each Consisting of a Pre-funded Warrant to Purchase One Common SharesShare and a Warrant to Purchase One Common Share
Permex Petroleum Corporation
This prospectus relates to the resale by certain selling shareholdersis a firm commitment public offering of securities of Permex Petroleum Corporation, consisting of an aggregate of 1,900,000 common units (each, a corporation organized“Common Unit”). Each Common Unit consists of one Common Share, no par value per share (a “Common Share”), and one warrant (each a “Warrant”) at an assumed public offering price of $6.98 per Common Unit, the closing price of our common shares as quoted on the OTCQB on October 20, 2023 after giving effect to the Reverse Stock Split (as defined herein). Each Warrant will entitle the holder to purchase one Common Share at an exercise price of $ , equal to 125% of the public offering price of one Common Unit, and expire five years from date of issuance.
A holder will not have the right to exercise any portion of a Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, at the election of the holder prior to issuance, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants (the “Warrant Exercise Limitation”). However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days’ prior notice from the holder to us.
We are also offering to those purchasers, if any, whose purchase of Common Units in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Shares immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded units (each a “Pre-funded Unit”) in lieu of Common Units. We are offering a maximum of 1,900,000 Pre-funded Units. Each Pre-funded Unit will consist of one pre-funded warrant to purchase one Common Share at an exercise price of $0.01 per share (each a “Pre-funded Warrant”) and one Warrant. The purchase price of each Pre-funded Unit is equal to the price per Common Unit being sold to the public in this offering, minus $0.01. The Pre-funded Warrants will be immediately exercisable and may be exercised at any time and are subject to the Warrant Exercise Limitation.
For each Pre-funded Unit we sell, the number of Common Units we are offering will be decreased on a one-for-one basis up to 1,900,000. Common Units and Pre-funded Units will not be certificated. The Common Shares included in the Common Units or Pre-funded Units, as the case may be, and the Warrants included in the Common Units or the Pre-funded Units, can only be purchased together in this offering, but the securities contained in the Common Units and Pre-funded Units are immediately separable and will be issued separately.
The offering also includes the Common Shares issuable from time to time upon exercise of the Pre-funded Warrants and Warrants.
We have applied to have the Common Shares and Warrants listed on The Nasdaq Capital Market upon our satisfaction of The Nasdaq Capital Market’s initial listing criteria under the lawstrading symbols “OILS” and “OILSW,” respectively. No assurance can be given that our application will be approved. If our Common Shares and Warrants are not approved for listing on The Nasdaq Capital Market we will not consummate this offering. On November 2, 2022, we effected a 1-for-60 reverse split of British Columbia, Canada (the “Company”), identifiedour outstanding common shares. In order to obtain approval to list our securities on The Nasdaq Capital Market we effected a 1-for-4 reverse stock split of our Common Shares on October 23, 2023. Except as otherwise indicated, information in this prospectus, other than as set forth in our financial statements and the notes thereto, reflects the 1-for-4 reverse stock split of upour Common Shares, which we refer to 98,970,113 common shares (the “Resale Shares”)as the “Reverse Stock Split,” which was effective on October 23, 2023. The Reverse Stock Split was subject to approval by the Canadian Securities Exchange, which coincided with the effective date of October 23, 2023.
We do not intend to apply for the listing of the Company, no par value, including 51,841,488 Resale Shares issuable upon exercise of outstanding warrants. AllCommon Units, Pre-funded Units or Pre-funded Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Resale Shares were purchased from the Company in a private placement transaction.
The Resale Shares may be sold by the selling shareholders to or through underwriters or dealers, directly to purchasers or through agents designated from time to time. For additional information regarding the methods of sale you should refer to the section entitled “Plan of Distribution” in this prospectus.
The prices at which the selling shareholders may sell the Resale SharesPre-funded Warrants will be determined by the prevailing market price for the Company’s common shares or in privately negotiated transactions. The Company will not receive any proceeds from the sale of the Resalelimited.
Our Common Shares by the selling shareholders; provided, however, the Company will receive the proceeds from any cash exercise of warrants.
The Company will bear all costs relating to the registration of the Resale Shares, other than any selling shareholder’s legal or accounting costs or commissions.
The Company’s common shares are presently listed on the Canadian Securities Exchange and the Frankfurt Stock Exchange under the symbols “OIL” and “75P”, respectively, and quoted on the OTCQB tier of the OTC Markets Group, Inc. under the symbol “OILCF.“OILCD.” The closing price of the Company’s common sharesour Common Shares on July 14, 2022,October 20, 2023, as reported by the OTCQB was $0.0945$6.98 per share.Common Share after giving effect to the Reverse Stock Split which was effected on October 23, 2023. We have assumed a public offering price of $6.98 per Common Unit (which is based on the closing price of our Common Shares as reported by the OTCQB on October 20, 2023). The final public offering price will be determined through negotiation between us and the representative of the underwriters in the offering and the assumed offering price used throughout this prospectus may not be indicative of the final offering price. At present, there is a very limited market for our Common Shares and there is no established trading market for the Warrants. The trading price of our Common Shares has been, and may continue to be, subject to wide price fluctuations in response to various factors, many of which are beyond our control, including those described in “Risk Factors.”
Quotes of the trading prices of our Common Shares on the OTCQB may not be indicative of the market price of our Common Shares if listed on The Nasdaq Capital Market.
Investing in the Company’s common sharesour securities involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 1417 of this prospectus and elsewhere in this prospectus for a discussion of information that should be considered in connection with an investment in the Company’s common shares.
The Company may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.
The Company is an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. See “Prospectus Summary - Implications of Being an Emerging Growth Company.”
securities. Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus dated , 2022
Per Common Unit | Per Pre-Funded Unit | Total | ||||||||||
Initial public offering price | $ | $ | $ | |||||||||
Underwriting discounts and commissions(1) | $ | $ | $ | |||||||||
Proceeds to us, before expenses | $ | $ | $ |
(1) | Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to the underwriters. The underwriters will receive compensation in addition to the discounts and commissions. We refer you to “Underwriting” beginning on page 87 of this prospectus for additional information regarding underwriting compensation. |
We have granted a 45-day option to the underwriters to purchase up to 285,000 additional Common Shares, and/or up to 285,000 Pre-funded Warrants and/or up to 285,000 Warrants representing 15% of the Common Shares, Pre-funded Warrants and Warrants sold in the offering, solely to cover over-allotments, if any.
The underwriters expect to deliver our securities to purchasers in the offering on or about , 2023.
ThinkEquity
The date of this prospectus is , 2023
-i- |
TABLE OF CONTENTS
You should rely only onWe and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in or incorporated by reference in this prospectus or in any free writing prospectusprospectuses prepared by or on behalf of us or to which we may authorize to be delivered or made available tohave referred you. We have nottake no responsibility for, and can provide no assurance as to the selling shareholders have not authorized anyone to provide you with different information. The selling shareholders are offeringreliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and seeking offers to buy, our common shares only in jurisdictions where offers and sales are permitted.it is lawful to do so. The information contained in or incorporated by reference in this prospectus is accurate only as of theits date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares.securities.
For investors outsideTo the United States: extent there is a conflict between the information contained in this prospectus, on the one hand, and the information contained in any document incorporated by reference filed with the U.S. Securities and Exchange Commission (the “SEC”) before the date of this prospectus, on the other hand, you should rely on the information in this prospectus. If any statement in a document incorporated by reference is inconsistent with a statement in another document incorporated by reference having a later date, the statement in the document having the later date modifies or supersedes the earlier statement.
Neither we nor the selling shareholdersunderwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction other than the United States, where action for that purpose is required. Persons outsiderequired, other than in the United StatesStates. Persons who come into possession of this prospectus mustand any free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions relatingas to thethis offering of our common shares and the distribution of this prospectus outside the United States.and any free writing prospectus applicable to that jurisdiction.
This prospectus is a part of a registration statement on Form S-1 that we filed withand the Securities and Exchange Commission. The selling shareholders may from time to time sell the common shares covereddocuments incorporated by reference in this prospectus contain market data and in certain circumstances,industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe that these sources are reliable, we do not guarantee the accuracy or completeness of this information and we have not independently verified this information. Although we are not aware of any misstatements regarding the selling shareholders may provide a supplement tomarket and industry data presented or incorporated by reference in this prospectus, that will contain certain specific information aboutthese estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the terms of a particular offering by one or more of the selling shareholders or to add information to, or update or change information contained inheading “Risk Factors” and any related free writing prospectus. Accordingly, investors should not place undue reliance on this prospectus. You should read this prospectus or any supplement to this prospectus before deciding to invest in our common shares. You may obtain this information without charge by following the instructions under “Where You Can Find Additional Information” appearing elsewhere in this prospectus.information.
Unless otherwise indicated in this report,prospectus, natural gas volumes are stated at the legal pressure base of the state or geographic area in which the reserves are located at 60 degrees Fahrenheit. Crude oil and natural gas equivalents are determined using the ratio of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas liquids.
The following definitions shall apply to the technical terms used in this prospectus.
Terms used to describe quantities of crude oil and natural gas:
“Bbl.” One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or NGLs.
“Boe.” A barrel of oil equivalent and is a standard convention used to express crude oil, NGL and natural gas volumes on a comparable crude oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of 6.0 Mcf of natural gas to 1.0 Bbl of crude oil or NGL.
“MBbl.” One thousand barrels of crude oil, condensate or NGLs.
“MBoe” One thousand barrels of oil equivalent.
“Mcf.” One thousand cubic feet of natural gas.
“MMCF.” one million cubic feet.
“NGLs.” Natural gas liquids. Hydrocarbons found in natural gas that may be extracted as liquefied petroleum gas and natural gasoline.
Terms used to describe our interests in wells and acreage:
“Basin.” A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.
“Completion.” The process of treating a drilled well followed by the installation of permanent equipment for the production of crude oil, NGLs, and/or natural gas.
“Developed acreage.” Acreage consisting of leased acres spaced or assignable to productive wells. Acreage included in spacing units of infill wells is classified as developed acreage at the time production commences from the initial well in the spacing unit. As such, the addition of an infill well does not have any impact on a company’s amount of developed acreage.
“Development well.” A well drilled within the proved area of a crude oil, NGL, or natural gas reservoir to the depth of a stratigraphic horizon (rock layer or formation) known to be productive for the purpose of extracting proved crude oil, NGL, or natural gas reserves.
“Differential.” The difference between a benchmark price of crude oil and natural gas, such as the NYMEX crude oil spot price, and the wellhead price received.
“Dry hole.” A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
“Field.” An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
“Formation.” A layer of rock which has distinct characteristics that differs from nearby rock.
“Gross acres or Gross wells.” The total acres or wells, as the case may be, in which a working interest is owned.
“Held by operations.” A provision in an oil and gas lease that extends the stated term of the lease as long as drilling operations are ongoing on the property.
“Held by production” or “HBP” A provision in an oil and gas lease that extends the stated term of the lease as long as the property produces a minimum quantity of crude oil, NGLs, and natural gas.
“Hydraulic fracturing.” The technique of improving a well’s production by pumping a mixture of fluids into the formation and rupturing the rock, creating an artificial channel. As part of this technique, sand or other material may also be injected into the formation to keep the channel open, so that fluids or natural gases may more easily flow through the formation.
“Infill well.” A subsequent well drilled in an established spacing unit of an already established productive well in the spacing unit. Acreage on which infill wells are drilled is considered developed commencing with the initial productive well established in the spacing unit. As such, the addition of an infill well does not have any impact on a company’s amount of developed acreage.
“Net acres.” The percentage ownership of gross acres. Net acres are deemed to exist when the sum of fractional ownership working interests in gross acres equals one (e.g., a 10% working interest in a lease covering 640 gross acres is equivalent to 64 net acres).
“NYMEX.” The New York Mercantile Exchange.
“Productive well.” A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.
“Recompletion.” The process of treating a drilled well followed by the installation of permanent equipment for the production of crude oil, NGLs or natural gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.
“Reservoir.” A porous and permeable underground formation containing a natural accumulation of producible crude oil, NGLs and/or natural gas that is confined by impermeable rock or water barriers and is separate from other reservoirs.
“Spacing.” The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.
“Undeveloped acreage.” Leased acreage on which wells have not been drilled or completed to a point that would permit the production of economic quantities of crude oil, NGLs, and natural gas, regardless of whether such acreage contains proved reserves. Undeveloped acreage includes net acres held by operations until a productive well is established in the spacing unit.
“Unit.” The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property interests. Also, the area covered by a unitization agreement.
“Wellbore.” The hole drilled by the bit that is equipped for natural gas production on a completed well. Also called well or borehole.
“Working interest.” The right granted to the lessee of a property to explore for and to produce and own crude oil, NGLs, natural gas or other minerals. The working interest owners bear the exploration, development, and operating costs on either a cash, penalty, or carried basis.
“Workover.” Operations on a producing well to restore or increase production.
Terms used to assign a present value to or to classify our reserves:
“Possible reserves.” The additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves.
“Pre-tax PV-10% or PV-10.” The estimated future net revenue, discounted at a rate of 10% per annum, before income taxes and with no price or cost escalation or de-escalation in accordance with guidelines promulgated by the SEC.
“Probable reserves.” The additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but which together with proved reserves, are as likely as not to be recovered.
“Proved reserves.” The quantities of crude oil, NGLs and natural gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
“Proved undeveloped reserves” or “PUDs.” Proved Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having proved undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. Estimates for proved undeveloped reserves are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
“SEC Pricing” means pricing calculated using oil and natural gas price parameters established by current guidelines of the United States Securities and Exchange Commission (the “SEC”)SEC and accounting rules based on the unweighted arithmetic average of oil and natural gas prices as of the first day of each of the 12 months ended on the given date.
This summary highlights information contained in this prospectus. It does not contain all of the information that you should consider in making your investment decision. Before investing in our common shares,securities, you should read this entire prospectus carefully, including the sections entitled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. Except as otherwise required by the context, references to “Permex,” “the Company,” “we,” “us” and “our” are to Permex Petroleum Corporation, a corporation organized under the laws of British Columbia, Canada, individually, or as the context requires, collectively with its subsidiary. Certain operational terms used in this prospectus are defined in the “Glossary of Terms.” All references to “U.S. Dollars,” “USD” or “$” are to the legal currency of the United States, and all references to “CAD$” and “C$” are to the legal currency of Canada. All references to “M$” are in thousands of dollars.
All information presented in this prospectus has been retrospectively restated to give effect to the Reverse Stock Split which was effected on October 23, 2023 assuming no fractional shares will be issued in connection with the Reverse Stock Split and all such fractional interests will be rounded up or down to the nearest whole number of Common Shares, as applicable.
Company Overview
We are an independent energy company engaged in the acquisition, exploration, development and production of oil and natural gas properties on private, state and federal land in the United States, primarily in the Permian Basin region of West Texas and Southeast New Mexico which includes the Midland – Central Basin and Delaware Basin. We focus on acquiring producing assets at a discount to market, increasing production and cash-flow through recompletion and re-entries, secondary recovery and lowerreducing risk by infill drilling and development. Currently, we own and operate various oil and gas properties located in Texas and New Mexico. In addition, we hold variousas well as royalty interests in 73 wells and 5five permitted wells across 3,800 acres within the Permian Basin of West Texas and southeast New Mexico. Moreover,Basin. Overall, we own and operate more than 78 oil and gas wells, have more than 11,700 net acres of production oil and gas assets, 6762 shut-in opportunities, 17 salt water disposal wells eliminating water disposal fees and decreasing OPEX and 2two water supply wells allowing for waterflood secondary recovery.
As described in more detail below, according to the 2022 Appraisal Report (defined below), the net present value of net future revenues, (net of royalties, operating costs and capital expenditures, including asset retirement obligations) before income tax, discounted at 10% (“NPV 10%” or “PV10”) of our total proved plus probable reserves is estimated at $428 million, or $221.53 per outstanding share (basis). In particular, based on the information in the 2022 Appraisal Report:
● | Our reserves are comprised of 93% light oil and 7% natural gas; | |
● | Our total proved reserves were 6.7 million Boe and had a PV10 value of $199 million, which represented an increase of 51% year-over-year; | |
● | Our total probable reserves were 9.2 million Boe and had a PV10 value of $230 million, which represented an increase of 46% year-over-year; and | |
● | Our total proved and probable reserves were 15.9 million Boe and a PV10 value of $428 million, which represented an increase of 48% year-over-year. |
The following is a summary of our net oil and gas reserves net present value of revenue as of September 30, 2022:
Reserves MBoe | NPV 10% ($ thousand) | NPV per Boe $/Boe | ||||||||||
Proved Developed Producing | 492.5 | 12,057.6 | 24.48 | |||||||||
Total Proved | 6,739.0 | 198,619.1 | 29.47 | |||||||||
Proved Plus Probable | 15,917.5 | 428,186.5 | 26.90 |
1. | Natural Gas: 5.98 Mcf/Boe | |
2. | The 2022 Appraisal Report used SEC Pricing effective September 30, 2022 |
Oil and Gas Properties
The CompanyWe hired MKM Engineering, who prepared for the Companyus an Appraisal of Certain Oil and Gas Interests owned by Permex Petroleum Corporation located in New Mexico and Texas as of September 30, 20212022 (the “2021“2022 Appraisal Report”) as well as an Appraisal of Certain Oil and Gas Interests owned by Permex Petroleum Corporation located in New Mexico and Texas as of September 30, 20202021 (the “2020“2021 Appraisal Report” and together with the 20212022 Appraisal Report the “Appraisal Reports”). MKM Engineering is independent with respect to Permex Petroleum Corporation as provided in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. MKM Engineering’s estimates of the Company’sour proved and probable reserves in each of the Appraisal Reports were prepared according to generally accepted petroleum engineering and evaluation principles, and each of the Appraisal Reports conform to SEC Pricing. The Appraisal Reports are each filed as an exhibit to the registration statement for which this prospectus is a part of.part.
The Appraisal Reports were each specifically prepared by Michele Mudrone, an employee of MKM Engineering, a registered Professional Engineer in the State of Texas, and a member of the Society of Petroleum Engineers. Ms. Mudrone graduated from the Colorado School of Mines with a Bachelor of Science degree in Petroleum Engineering in 1976 and has been employed in the petroleum industry and directly involved in reservoir engineering, petrophysical analysis, reservoir simulation and property evaluation since that timetime. Ms. Mudrone certified in each Appraisal Report that she did not receive, nor expects to receive, any direct or indirect interest in the holdings discussed in the report or in the securities of the Company. Because the Company’sof our current size, the Company doeswe do not have any technical person at the Company responseresponsible for overseeing the preparation of the reserve estimates presented herein (or have any internal control policies pertaining to estimates of oil and gas reserves), and consequently, the Company relieswe rely exclusively on the Appraisal Reports in the preparation of the reserve estimates present in this prospectus.
Since all of the Company’sour reserves are from conventional reservoirs, MKM Engineering assumed for the purposes of its appraisal reports that the technology to be used to develop the Company’sour reserves would include horizontally drilled wells, fracturing, and acidizing.
The following tables show a summary of our reserves as of September 30, 20212022 and September 30, 20202021 which have been derived from the Appraisal Reports and conform to SEC Pricing.
Composite Proved Reserve Estimates and Economic Forecasts for the year ended September 30, 2021.2022
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||||
Net Reserves | ||||||||||||||||||
Oil/Condensate | MBbl | 6,237.1 | 444.6 | 709.3 | 5,083.2 | |||||||||||||
Gas | Mcf | 3,001.2 | 286.2 | 578.6 | 2,136.4 | |||||||||||||
Revenue | ||||||||||||||||||
Oil/Condensate | M$ | 572,090.2 | 40,485.1 | 65,032.6 | 466,572.5 | |||||||||||||
Gas | M$ | 17,390.7 | 1,736.5 | 3,287.4 | 12,366.8 | |||||||||||||
Severance and Ad Valorem Taxes | M$ | 43,493.7 | 3,633.2 | 4,955.7 | 34,904.8 | |||||||||||||
Operating Expenses | M$ | 48,136.3 | 11,893.8 | 5,610.1 | 30,632.4 | |||||||||||||
Investments | M$ | 71,700.0 | 806.9 | 2,074.6 | 68,818.5 | |||||||||||||
Operating Income (BFIT) | M$ | 426,150.9 | 25,887.7 | 55,679.6 | 344,583.6 | |||||||||||||
Discounted @ 10% | M$ | 198,619.1 | 12,057.6 | 34,831.6 | 151,729.9 |
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||
Net Reserves | ||||||||||||||||
Oil/Condensate | MBbl | 8,041.4 | 399.3 | 188.1 | 7,454.0 | |||||||||||
Natural Gas | Mcf | 3,600.7 | 314.4 | 97.5 | 3,188.8 | |||||||||||
Revenue | ||||||||||||||||
Oil/Condensate | M$ | 447,285.1 | 21,930.1 | 10,468.6 | 414,896.4 | |||||||||||
Natural Gas | M$ | 10,620.9 | 949.0 | 281.0 | 9,384.9 | |||||||||||
Severance and Ad Valorem Taxes | M$ | 35,509.2 | 1,927.3 | 774.5 | 32,807.4 | |||||||||||
Operating Expenses | M$ | 59,842.5 | 8,048.8 | 3,057.0 | 48,736.7 | |||||||||||
Investments | M$ | 116,944.9 | 791.9 | 689.6 | 115,463.4 | |||||||||||
Operating Income (BFIT) | M$ | 245,609.4 | 12,101.2 | 6,294.4 | 227,273.8 | |||||||||||
Discounted @ 10% | M$ | 100,517.6 | 6,356.0 | 3,644.6 | 90,517.0 |
Composite Proved Reserve Estimates and Economic Forecasts for the year ended September 30, 2020.2021
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||||||||||||||||
Net Reserves | ||||||||||||||||||||||||||||||||||
Oil/Condensate | MBbl | 4,553.6 | 254.9 | 294.5 | 4,004.2 | MBbl | 6,199.4 | 399.3 | 188.1 | 5,612.0 | ||||||||||||||||||||||||
Natural Gas | Mcf | 849.6 | 64.9 | 17.6 | 767.1 | Mcf | 3,018.3 | 314.4 | 97.5 | 2,606.4 | ||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||
Oil/Condensate | M$ | 183,306.9 | 10.201.3 | 12,077.9 | 161,027.7 | M$ | 347,051.0 | 21,920.1 | 10,468.6 | 314,662.3 | ||||||||||||||||||||||||
Natural Gas | M$ | 1,513.4 | 58.7 | 32.6 | 1,422.2 | M$ | 8,906.8 | 949.0 | 286.9 | 7,670.9 | ||||||||||||||||||||||||
Severance and Ad Valorem Taxes | M$ | 15,043.0 | 903.6 | 863.4 | 13,276.1 | M$ | 26,171.1 | 1,927.3 | 774.5 | 23,469.3 | ||||||||||||||||||||||||
Operating Expenses | M$ | 46,961.1 | 5,590.5 | 2,818.4 | 38,552.1 | M$ | 43,511.4 | 8,048.8 | 3,057.0 | 32,405.6 | ||||||||||||||||||||||||
Investments | M$ | 47,250.1 | 630.1 | 807.0 | 45,813.0 | M$ | 71,700.0 | 791.9 | 689.6 | 70,218.5 | ||||||||||||||||||||||||
Operating Income (BFIT) | M$ | 79,506.7 | 3,765.9 | 8,106.5 | 67,634.3 | M$ | 214,575.4 | 12,101.2 | 6,234.4 | 196,239.8 | ||||||||||||||||||||||||
Discounted @ 10% | M$ | 27,835.8 | 1,806.4 | 4,057.76 | 21,971.8 | M$ | 100,772.6 | 6,356.0 | 3,644.6 | 90,772.0 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2022
Probable | Probable Developed Producing | Probable Non-Producing | Probable Undeveloped | |||||||||||||||
Net Reserves | ||||||||||||||||||
Oil/Condensate | MBbl | 7,452.1 | 1.9 | 115.9 | 7,334.3 | |||||||||||||
Gas | Mcf | 10,323.8 | 10.5 | 6.2 | 10,307.1 | |||||||||||||
Revenue | ||||||||||||||||||
Oil/Condensate | M$ | 680,179.1 | 164.4 | 10,469.2 | 669,545.5 | |||||||||||||
Gas | M$ | 62,309.3 | 64.5 | 38.3 | 62,206.5 | |||||||||||||
Severance and Ad Valorem Taxes | M$ | 41,500.1 | 28.4 | 750.3 | 40,721.4 | |||||||||||||
Operating Expenses | M$ | 50,223.2 | 73.9 | 1,112.6 | 49,036.7 | |||||||||||||
Investments | M$ | 107,884.9 | — | — | 107,884.9 | |||||||||||||
Operating Income (BFIT) | M$ | 542,880.1 | 126.6 | 8,644.5 | 534,109.0 | |||||||||||||
Discounted @ 10% | M$ | 229,567.4 | 53.4 | 3,247.1 | 226,266.9 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2021
Probable | Probable Non- Producing | Probable Undeveloped | Probable | Probable Non-Producing | Probable Undeveloped | |||||||||||||||||||||
Net Reserves | ||||||||||||||||||||||||||
Oil/Condensate | MBbl | 13,770.1 | 119.8 | 13,650.3 | MBbl | 7,466.5 | 119.8 | 7,346.7 | ||||||||||||||||||
Natural Gas | Mcf | 11,156.9 | 6.3 | 11,150.6 | Mcf | 10,252.1 | 6.3 | 10,245.8 | ||||||||||||||||||
Revenue | ||||||||||||||||||||||||||
Oil/Condensate | M$ | 759,792.4 | 6,686.4 | 753,106.0 | M$ | 411,745.8 | 6,686.4 | 405,059.4 | ||||||||||||||||||
Natural Gas | M$ | 32,834.6 | 18.4 | 32,816.2 | M$ | 30,171.8 | 18.4 | 30,153.4 | ||||||||||||||||||
Severance and Ad Valorem Taxes | M$ | 23,516.7 | 478.1 | 23,038.6 | M$ | 23,511.2 | 478.1 | 23,033.1 | ||||||||||||||||||
Operating Expenses | M$ | 78,965.6 | 1,061.2 | 77,904.4 | M$ | 50,336.3 | 1,061.2 | 49,275.1 | ||||||||||||||||||
Investments | M$ | 260,004.9 | - | 260,004.9 | M$ | 102,884.9 | — | 102,884.9 | ||||||||||||||||||
Operating Income (BFIT) | M$ | 430,139.7 | 5,165.5 | 424,974.2 | M$ | 265,185.3 | 5,165.5 | 260,019.8 | ||||||||||||||||||
Discounted @ 10% | M$ | 120,489.5 | 1,957.5 | 118,532.0 | M$ | 123,329.8 | 1,957.5 | 121,372.3 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2020
Probable | Probable Non- Producing | Probable Undeveloped | ||||||||||
Net Reserves | ||||||||||||
Oil/Condensate | MBbl | 3,557.8 | 121.9 | 3,435.9 | ||||||||
Natural Gas | Mcf | 7,405.9 | 6.3 | 7,399.6 | ||||||||
Revenue | ||||||||||||
Oil/Condensate | M$ | 142,754.7 | 5,024.7 | 137,730.0 | ||||||||
Natural Gas | M$ | 14,551.4 | 12.3 | 14,539.1 | ||||||||
Severance and Ad Valorem Taxes | M$ | 18,159.2 | 359.4 | 17,799.8 | ||||||||
Operating Expenses | M$ | 21,959.5 | 952.6 | 21,006.9 | ||||||||
Investments | M$ | 50,784.9 | - | 50,784.9 | ||||||||
Operating Income (BFIT) | M$ | 66,402.5 | 3,725.0 | 62,677.5 | ||||||||
Discounted @ 10% | M$ | 26,959.4 | 1,489.9 | 25,469.5 |
Probable reserves are unproven reserves that geologic and engineering analyses suggest are more likely than not to be recoverable,recoverable. They are not comparable to proved reserves and estimates of oil, condensate, and gas reserves and future net revenue should be regarded only as estimates that may change as further production history and additional information become available. Such reserve and revenue estimates are based on the information currently available, the interpretation of which is subject to uncertainties inherent in applying judgmental factors.
Conversion of Undeveloped Acreage
The Company’sOur process for converting undeveloped acreage to developed acreage is tied to whether there is any drilling being conducted on the acreage in question. During the fiscal year ended September 30, 2021, the Company did not commence drilling on anyWe have started development and conversion of our undeveloped acreage and no undeveloped reserves were converted into proved developed reserves. The Company has also did not make any investments in, or make any progress towards, converting proved undeveloped reserves to proved developed reserves during the year ended September 30, 2021. The Company also has not begun drilling on any undeveloped acreage or make any investments in undeveloped reserves during 2022 as of the date hereof.
During the fiscal year ended 2021, the Company made an acquisition of an aggregate of 1,246 net acres of new properties located in Martin County, TexasTexas. The PPC Eoff #3 well, operated by Permex Petroleum, is the first of two permitted wells that resulted in an increasehas been drilled and is being completed by us on the 7,780 gross acre Breedlove oilfield. Drilling of 194 MBOthe first well commenced on September 14, 2022. Management furthermore expects to commence lateral drilling and 301 MMCF in proved producing reserves and 4,800 net acres in undeveloped acreage.completion of the well by January 2024, subject to receipt of additional funding.
An aggregate of 5,719 MBO5,083 MBoe and 2,5112,136 MMCF of the Company’sour proved undeveloped reserves as of September 30, 2021,2022, 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, 2021.2022.
An aggregate of 1,735 MBO and 678 MMCF, of the Company’sProved Undeveloped Reserves Additions
From September 30, 2021 to September 30, 2022, we had no proved undeveloped additions. The specific changes to our proved undeveloped reserves from September 30, 2021 to September 30, 2022 were as follows:
Breedlove | Pittcock & Mary Bullard | Henshaw | Royalty Wells | Total | ||||||||||||||||
Beginning balance at September 30, 2021 (Mboe)(1) | 5,584.14 | 336.09 | — | 0.22 | 5,920.45 | |||||||||||||||
Production (Mboe)(1) | — | — | — | — | — | |||||||||||||||
Revisions or reclassifications of previous estimates (Mboe)(1) | (589.17 | ) | — | — | — | (589.17 | ) | |||||||||||||
Improved Recovery (Mboe)(1) | — | — | — | — | — | |||||||||||||||
Extensions and Discoveries (Mboe)(1) | — | — | — | — | — | |||||||||||||||
Acquisitions/Purchases (Mboe)(1) | — | — | — | — | — | |||||||||||||||
Sales (Mboe)(1) | — | — | — | — | — | |||||||||||||||
Price Change (Mboe) | (28.54 | ) | 6.02 | — | — | (22.52 | ) | |||||||||||||
Ending balance as of September 30, 2022 (Mboe)(1) | 4,966.43 | 342.11 | — | 0.22 | 5,308.76 |
(1) | Natural gas volumes have been converted to Boe based on energy content of six Mcf of gas to one Bbl of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, in the year ended September 30, 2022, the average prices of WTI (Cushing) oil and NYMEX Henry Hub natural gas were $91.71 per Bbl and $6.126 per Mcf, respectively, resulting in an oil-to-gas ratio of just under 14 to 1. |
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Financing of Proved and Probable Undeveloped Reserves
We currently estimate that the total cost to develop our proved undeveloped reserves of 5,083.2 MBbl of oil and 2,136.4 Mcf of natural gas as of September 30, 2021, are scheduled2022 is $68,818,530. We expect to be developed after five years primarily duefinance 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 our wells.
We currently estimate that the total cost to the relatively high numberdevelop our probable undeveloped reserves of wells the Company plans7,334.3 MBbl of oil and 10,307.1 Mcf of natural gas as of September 30, 2022 is $107,884,900. We expect to drill per year, the significant increase in the amountfinance these capital costs through a combination of the Company’s undeveloped acreage in 2021 resultingjoint 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 the acquisitioncash generated from estimated revenues from sales of properties in Martin County, Texas, the Company’s current limited resources,oil and the current availability of rigs and equipment required for drilling. Possible changes in commodity prices have also been considered by management when developing the Company’s drilling plans.natural gas produced at our wells.
Drilling Activities
The Company did not drill any wellsWe drilled one well during the last three fiscal years. As at September 30, 2021, the Company2022, we had 9578 gross wells and 17.2914 net productive wells, with 89 wells producing oil and six wells producing natural gas, and the Company’swells. Our gross developed acreage totaled 5,177 and net developed acreage totaled 3,942 with the following geographicproperty breakdown:
Property | Gross Developed Acreage | Net Developed Acreage | Gross Productive Wells | Net Productive Wells | Gross Developed Acreage | Net Developed Acreage | Gross Productive Wells | Net Productive Wells | ||||||||||||||||||||||||
Pittock | 818 | 664.63 | 1 | 0.81 | ||||||||||||||||||||||||||||
Pittcock | 818 | 664.63 | 1 | 0.81 | ||||||||||||||||||||||||||||
Henshaw | 1,880 | 1,353.60 | 2 | 1.44 | 1,880 | 1,353.60 | 6 | 4.32 | ||||||||||||||||||||||||
Oxy Yates | 680 | 489.60 | 2 | 1.44 | 680 | 489.60 | 5 | 3.60 | ||||||||||||||||||||||||
Bullard | 241 | 187.98 | 1 | 0.78 | 241 | 187.98 | 1 | 0.78 | ||||||||||||||||||||||||
Breedlove | 1,558 | 1,246.4 | 16 | 12.80 | 1,558 | 1,246.40 | 16 | 12.80 | ||||||||||||||||||||||||
Royalty Interest Properties | - | - | 73 | 0.01 | — | — | 73 | 0.01 |
The Company hasWe have 6,000 gross undeveloped acres and 4,800 net undeveloped acres. All of the Company’sour undeveloped acreage is on the Company’sour Breedlove property.
The Company’sOur leases are 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 hasWe have over 340 leases covering undeveloped acreage and less than 3%5% of these leases have aan expiry date that is less than two year expiry dateyears from the date of this prospectus.hereof.
Sales and Production
The average sales prices of the Company’sour oil and gas products sold in the fiscal years ended September 30, 2022, 2021, and 2020 was $89.14/Boe, $54.19/Boe, and 2019 was $46.86, $38.51, and $51.79,$38.51/Boe, respectively.
The Company’sOur net production quantities by final product sold in the fiscal years ended September 30, 2022, 2021, and 2020, and 2019 was 30,623.6912,597.45 Boe, 20,112.441,182.70 Boe, and 1,112.8717,772.14 Boe, respectively.
The Company’sOur average production costs per unit for the fiscal years ended September 30, 2022, 2021, and 2020, was $65.82/Boe, and 2019, was $23.56, $27.93,$40.94/Boe, and $32.59,$32.59/Boe, respectively.
The breakdown of production and prices between oil/condensate and natural gas was as follows:
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 10,670 | 948 | 16,240 | |||||||||
Natural Gas (Mcf) | 11,567 | 1,410 | 9,196 |
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | 947 | 16,240 | 25,513 | |||||||||
Natural Gas (Mcf) | 1,410 | 9,196 | 13,121 |
Average Sales Price | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate ($/Bbl) | 96.18 | 62.37 | 41.09 | |||||||||
Natural Gas ($/Mcf) | 8.36 | 3.54 | 1.44 |
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Average Sales Price | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate ($/Bbl) | 58.36 | 41.09 | 49.67 | |||||||||
Natural Gas ($/Mcf) | 3.40 | 1.44 | 2.04 |
The breakdown of the Company’sour production quantities by individual product type for each of the Company’sour fields that contain 15% or more of the Company’sour total proved reserves expressed on an oil-equivalent-barrels basis was as follows:
Breedlove
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 6,998 | — | — | |||||||||
Natural Gas (Mcf) | 11,567 | 419 | — |
Henshaw
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 2,189 | — | — | |||||||||
Natural Gas (Mcf) | — | — | — |
Pittcock – Mary Bullard
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 1,483 | 847 | 291 | |||||||||
Natural Gas (Mcf) | — | — | — |
ODC San Andres
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 |
| ||||||||||||
Oil/Condensate (Bbl) | ||||||||||||||||
Natural Gas (Mcf) | 2,605 |
Henshaw
|
| |||||||||||
McMurtry-Loving
|
|
| ||||||||||
ODC San Andres
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | 14,464 | 11,570 | - | |||||||||
Natural Gas (Mcf) | 4,982 | 2,605 | - |
Texas Properties
Breedlove “B” Clearfork Leases
In September 2021, we, through our 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.leases located in Martin County, Texas. We issued 104,164 Common Shares and 52,082 share purchase warrants as consideration for this acquisition. 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, we began the pilot re-entry on the Carter Clearfork well #5, which is one of 67 shut-in wells that we currently own. In addition, we have begunThe re-entry involved targeting the permitting process for two locationsClearfork formation at a depth of 7,200 feet. Due to the high water concentrating in the fluid entry, management plans to install appropriate flow-lines from this well to the injections wells on the Breedlove property for drilling and development. Upon approval ofprior to putting the permits by the regulatory body, we expectwell back on pump. By doing so management plans to competereduce unnecessary operating expenses from water disposal in the Spraberry and Wolfcamp formations with possible fracking.third party disposal facilities.
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Pittcock Leases
The Pittcock Leases are situated in Stonewall County which 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. We hold 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. We hold 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 to the offset wells being the Pittcock wells located east boundary of the Windy Jones Property. We hold a 100% working interest in the Windy Jones Property and a 78.9% net revenue interest.
Mary Bullard Property
We acquired the Mary Bullard Property in August 2017.2017 for 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. We hold a 100% working interest in the Mary Bullard Property and a 78.625% net revenue interest.
New Mexico Properties
In December 2017, Permex Petroleum US Corporation, our wholly-owned subsidiary, acquired the West Henshaw Property and the Oxy Yates Property.Property for $170,000 from Permex Petroleum Company LLC (“PPC”). An additional $95,000 was transferred by us to PPC to purchase reclamation bonds in connection with the future operation of the properties.
West Henshaw Property
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. We hold a 100% working interest in the West Henshaw Property and a 72% net revenue interest.
In January 2022, we began the pilot re-entry on the West Henshaw well #15-3.#15-3, one out of the 67 shut-in wells we 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 barrels of oil per day (“bopd”)bopd and has stabilized at 15 bopd. Management believes the production rates from this mature, long-life well to continue with less than 10% decline year over year.
In April 2022, we 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. Management believes the
The remaining 67 shut-in wells that we plan to re-enter have potential to yield similar results increasing our total daily production rates from this mature, long-life well to continue with less than 10% decline year over year.solely by re-entering shut-in wells.
Oxy Yates Property
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. We hold a 100% working interest in the Oxy Yates Property and a 77% net revenue interest.
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Royalty Interest Properties
During the year ended September 30, 2021,we acquired royalty interests in 73 producing oil and gas wells located in Texas and New Mexico. for $179,095. There are no changes to the royalty interests held by the Company in fiscal 2022.
Business Strategy
The principal elements of our business strategy include the following:
● | Grow production and reserves in a capital efficient manner using internally generated levered free cash flow. We intend to allocate capital in a disciplined manner to projects that we anticipate will produce predictable and attractive rates of return. We plan to direct capital to our | |
● | Maximize ultimate hydrocarbon recovery from our assets by optimizing drilling, completion and production techniques and investigating deeper reservoirs and areas beyond our known productive areas. While we intend to utilize proven techniques and technologies, we will also continuously seek efficiencies in our drilling, completion and production techniques in order to optimize ultimate resource recoveries, rates of return and cash flows. We will explore innovative enhanced oil recovery (“EOR”) techniques to unlock additional value and have allocated capital towards next generation technologies. For example, we have already completed extensive waterflood EOR studies in Pittcock North and Pittcock South. Through these studies, we will seek to expand our development beyond our known productive areas in order to add probable and possible reserves to our inventory at attractive all-in |
● | Pursue operational excellence with a sense of urgency. We plan to deliver low cost, consistent, timely and efficient execution of our drilling campaigns, work programs and operations. We intend to execute our operations in a safe and environmentally responsible manner, focus on reducing our emissions, apply advanced technologies, and continuously seek ways to reduce our operating cash costs on a per barrel basis. | |
● | Pursue strategic acquisitions that maintain or reduce our break-even costs. We intend to actively pursue accretive acquisitions, mergers and dispositions that are intended to improve our margins, returns, and break-even costs of our investment portfolio. Financial strategies associated with these efforts will focus on delivering competitive adjusted per share returns. |
Development
We believe that there is significant value to be created by drilling the identified undeveloped opportunities on our properties in conjunction with the stimulation and rework of our shut-in wells. While our near-term plans are focused towards drilling wells on our existing acreage to develop the potential contained therein, our long-term plans also include continuing to evaluate acquisition and leasing opportunities that can earn attractive rates of return on capital employed.
Risk Factor Summary
Our business is subject to a number of risks of which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our common shares.securities. Among these important risks are the following:
● | If we fail to obtain the capital necessary to fund our operations, we will be unable to continue our operations and you will likely lose your entire investment. Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you. | |
● | Our |
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● | Oil and gas prices are volatile, and declines in prices may adversely affect our financial position, financial results, cash flows, access to capital and ability to grow. | |
● | The actual quantities and present value of our proved oil, gas, and NGL reserves may be less than we have estimated. | |
● | Our acquisition strategy may subject us to certain risks associated with the inherent uncertainty in evaluating properties. | |
● | We may be unable to successfully integrate recently acquired assets or any assets we may acquire in the future into our business or achieve the anticipated benefits of such acquisitions. | |
● | Drilling for and producing oil, natural gas and NGLs are high risk activities with many uncertainties that could adversely affect our financial condition or results of operations. | |
● | Our future success depends on our ability to replace reserves. | |
● | Our business depends on third-party transportation and processing facilities and other assets that are owned by third parties. | |
● | The development of our proved undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate. Therefore, our undeveloped reserves may not be ultimately developed or produced. | |
● | Weather conditions, which could become more frequent or severe due to climate change, could adversely affect our ability to conduct drilling, completion and production activities in the areas where we operate. | |
● | We may incur losses as a result of title defects in the properties in which we invest. | |
● | Fuel conservation measures, technological advances and negative shift in market perception towards the oil and natural gas industry could reduce demand for oil and natural gas. | |
● | Our operations are concentrated in the Permian and Delaware Basins, making us vulnerable to risks associated with operating in a limited geographic area. | |
● | Increased attention to environmental, social and governance matters may impact our business. |
● | ||
● | The unavailability, high cost or shortages of rigs, equipment, raw materials, supplies or personnel may restrict or result in increased costs for operators related to developing and operating our properties. | |
● | Our business is highly regulated and governmental authorities can delay or deny permits and approvals or change legal requirements governing our operations, including well stimulation, enhanced production techniques and fluid injection or disposal, that could increase costs, restrict operations and delay our implementation of, or cause us to change, our business strategy. | |
● | Failure to comply with environmental laws and regulations could result in substantial penalties and adversely affect our business. | |
● | The market price of our | |
● | Even if we meet the initial listing requirements of The Nasdaq Capital Market, there can be no assurance that we will be able to comply with The Nasdaq Capital Market’s continued listing standards, a failure of which could result in a de-listing of our Common Shares and Warrants. | |
● | Our principal shareholders and management own a significant percentage of our shares and may be able to exert significant control over matters subject to shareholder approval. | |
● | We are a British Columbia company and it may be difficult for you to enforce judgments against us or certain of our directors or officers. | |
● | An investment in our securities, and certain subsequent transactions with respect to our securities, may result in uncertain or adverse U.S. federal income tax consequences for an investor. |
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Corporate History
We were incorporated on April 24, 2017 under the laws of British Columbia, Canada. At June 30, 2022,2023, we have one wholly-owned subsidiary, Permex Petroleum US Corporation, a corporation incorporated under the laws of New Mexico (Permex U.S.).Mexico. We own and operate oil and gas properties in Texas (Breedlove “B” Property, Pittcock North Property, Pittcock South Property, and Mary Bullard Property), and Permex U.S.Petroleum US Corporation owns and operates oil and gas properties in New Mexico (Henshaw Property and the Oxy Yates Property).
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”), and the requirement to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of which this prospectus forms a part. We are currently utilizing or intend to utilize both of these exemptions. We have not made a decision whether to take advantage of any other exemptions available to emerging growth companies. We do not know if some investors will find our common sharessecurities less attractive as a result of our utilization of these or other exemptions. The result may be a less active trading market for our common sharessecurities and our share price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, such an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our consolidated financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
We will remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07$1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period or (d) the last day of our fiscal year containing the fifth anniversary of the date on which we completecompleted our initial public offering of securities.
We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and in our filings with the SEC that are incorporated by referenced herein.SEC. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.
We are also a “smaller reporting company” as defined under the Securities Act and Exchange Act. We may continue to be a smaller reporting company so long as either (i) the market value of shares of our common stockCommon Shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of shares of our common stockCommon Shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if we are a smaller reporting company under the requirements of (ii) above, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
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THE OFFERING
The following summary is provided solely for convenience and is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus.
Impact of Covid-19
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. Specifically, the effects of the COVID-19 pandemic, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing in addition to other actions taken by both businesses and governments, resulted in a significant and swift reduction in international and U.S. economic activity. The collapse in the demand for oil caused by this unprecedented global health and economic crisis contributed to the significant decrease in crude oil prices in 2020 in general and resulted in shut down of the Company’s wellbores which had and could in the future continue to have a material adverse impact on the Company’s financial condition and results of operations. As a result of the ongoing COVID-19 pandemic, the Company’s operations, and those of its operating partners, have and may continue to experience delays or disruptions and temporary suspensions of operations and increased volatility. In addition, the Company’s results of operations and financial condition have been and may continue to be adversely affected by the ongoing COVID-19 pandemic; however, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds at this time. The Company is closely monitoring developments and adapting its business plans accordingly.
Oil and Gas Properties
The Company hired MKM Engineering, who prepared for the Company the Appraisal Reports. Each of the Appraisal Reports used standard engineering practices generally accepted by the petroleum industry and conform to SEC Pricing. The Appraisal Reports are each filed as an exhibit to the registration statement for which this prospectus is a part of. MKM Engineering is independent with respect to Permex Petroleum Corporation as provided in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. MKM Engineering’s estimates of the Company’s proved and probable reserves in each of the Appraisal Reports were prepared according to generally accepted petroleum engineering and evaluation principles, and each of the Appraisal Reports conform to SEC Pricing. The Appraisal Reports are each filed as an exhibit to the registration statement for which this prospectus is a part of.
The Appraisal Reports were each specifically prepared by Michele Mudrone, an employee of MKM Engineering, a registered Professional Engineer in the State of Texas, and a member of the Society of Petroleum Engineers. Ms. Mudrone graduated from the Colorado School of Mines with a Bachelor of Science degree in Petroleum Engineering in 1976 and has been employed in the petroleum industry and directly involved in reservoir engineering, petrophysical analysis, reservoir simulation and property evaluation since that time Ms. Mudrone certified in each Appraisal Report that she did not receive, nor expects to receive, any direct or indirect interest in the holdings discussed in the report or in the securities of the Company. Because the Company’s current size, the Company does not have any technical person at the Company response for overseeing the preparation of the reserve estimates presented herein (or have any internal control policies pertaining to estimates of oil and gas reserves) and consequently the Company relies exclusively on the Appraisal Reports in the preparation of the reserve estimates present in this prospectus.
Since all of the Company’s reserves are from conventional reservoirs, MKM Engineering assumed for the purposes of its appraisal reports that the technology to be used to develop the Company’s reserves would include horizontally drilled wells, fracturing, and acidizing.
The following tables show a summary of our reserves as of September 30, 2021 and September 30, 2020 which have been derived from the Appraisal Reports and conform to SEC Pricing.
Composite Proved Reserve Estimates and Economic Forecasts for the year ended September 30, 2021.
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||||||
Net Reserves | ||||||||||||||||||||
Oil/Condensate | MBbl | 8,041.4 | 399.3 | 188.1 | 7,454.0 | |||||||||||||||
Natural Gas | Mcf | 3,600.7 | 314.4 | 97.5 | 3,188.8 | |||||||||||||||
Revenue | ||||||||||||||||||||
Oil/Condensate | M$ | 447,285.1 | 21,930.1 | 10,468.6 | 414,896.4 | |||||||||||||||
Natural Gas | M$ | 10,620.9 | 949.0 | 281.0 | 9,384.9 | |||||||||||||||
Severance and Ad Valorem Taxes | M$ | 35,509.2 | 1,927.3 | 774.5 | 32,807.4 | |||||||||||||||
Operating Expenses | M$ | 59,842.5 | 8,048.8 | 3,057.0 | 48,736.7 | |||||||||||||||
Investments | M$ | 116,944.9 | 791.9 | 689.6 | 115,463.4 | |||||||||||||||
Operating Income (BFIT) | M$ | 245,609.4 | 12,101.2 | 6,294.4 | 227,273.8 | |||||||||||||||
Discounted @ 10% | M$ | 100,517.6 | 6,356.0 | 3,644.6 | 90,517.0 |
Composite Proved Reserve Estimates and Economic Forecasts for the year ended September 30, 2020.
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||||||
Net Reserves | ||||||||||||||||||||
Oil/Condensate | MBbl | 4,553.6 | 254.9 | 294.5 | 4,004.2 | |||||||||||||||
Natural Gas | Mcf | 849.6 | 64.9 | 17.6 | 767.1 | |||||||||||||||
Revenue | ||||||||||||||||||||
Oil/Condensate | M$ | 183,306.9 | 10.201.3 | 12,077.9 | 161,027.7 | |||||||||||||||
Natural Gas | M$ | 1,513.4 | 58.7 | 32.6 | 1,422.2 | |||||||||||||||
Severance and Ad Valorem Taxes | M$ | 15,043.0 | 903.6 | 863.4 | 13,276.1 | |||||||||||||||
Operating Expenses | M$ | 46,961.1 | 5,590.5 | 2,818.4 | 38,552.1 | |||||||||||||||
Investments | M$ | 47,250.1 | 630.1 | 807.0 | 45,813.0 | |||||||||||||||
Operating Income (BFIT) | M$ | 75,566.1 | 3,135.8 | 7,621.7 | 64,808.6 | |||||||||||||||
Discounted @ 10% | M$ | 27,835.8 | 1,806.4 | 4,057.6 | 21,971.8 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2021
Probable | Probable Non- Producing | Probable Undeveloped | ||||||||||||||
Net Reserves | ||||||||||||||||
Oil/Condensate | MBbl | 13,770.1 | 119.8 | 13,650.3 | ||||||||||||
Natural Gas | Mcf | 11,156.9 | 6.3 | 11,150.6 | ||||||||||||
Revenue | ||||||||||||||||
Oil/Condensate | M$ | 759,792.4 | 6,686.4 | 753,106.0 | ||||||||||||
Natural Gas | M$ | 32,834.6 | 18.4 | 32,816.2 | ||||||||||||
Severance and Ad Valorem Taxes | M$ | 23,516.7 | 478.1 | 23,038.6 | ||||||||||||
Operating Expenses | M$ | 78,965.6 | 1,061.2 | 77,904.4 | ||||||||||||
Investments | M$ | 260,004.9 | - | 260,004.9 | ||||||||||||
Operating Income (BFIT) | M$ | 430,139.7 | 5,165.5 | 424,974.2 | ||||||||||||
Discounted @ 10% | M$ | 120,489.5 | 1,957.5 | 118,532.0 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2020
Probable | Probable Non- Producing | Probable Undeveloped | ||||||||||||||
Net Reserves | ||||||||||||||||
Oil/Condensate | MBbl | 3,557.8 | 121.9 | 3,435.9 | ||||||||||||
Natural Gas | Mcf | 7,405.9 | 6.3 | 7,399.6 | ||||||||||||
Revenue | ||||||||||||||||
Oil/Condensate | M$ | 142,754.7 | 5,024.7 | 137,730.0 | ||||||||||||
Natural Gas | M$ | 14,551.4 | 12.3 | 14,539.1 | ||||||||||||
Severance and Ad Valorem Taxes | M$ | 18,159.2 | 359.4 | 17,799.8 | ||||||||||||
Operating Expenses | M$ | 21,959.5 | 952.6 | 21,006.9 | ||||||||||||
Investments | M$ | 50,784.9 | - | 50,784.9 | ||||||||||||
Operating Income (BFIT) | M$ | 66,402.5 | 3,725.0 | 62,677.5 | ||||||||||||
Discounted @ 10% | M$ | 26,959.4 | 1,489.9 | 25,469.5 |
Probable reserves are unproven reserves that geologic and engineering analyses suggest are more likely than not to be recoverable, They are not comparable to proved reserves and estimates of oil, condensate, and gas reserves and future net revenue should be regarded only as estimates that may change as further production history and additional information become available. Such reserve and revenue estimates are based on the information currently available, the interpretation of which is subject to uncertainties inherent in applying judgmental factors.
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. During the fiscal year ended September 30, 2021, the Company did not commence drilling on any undeveloped acreage and no undeveloped reserves were converted into proved developed reserves. The Company has also did not make any investments in, or make any progress towards, converting proved undeveloped reserves to proved developed reserves during the year ended September 30, 2021. The Company also has not begun drilling on any undeveloped acreage or make any investments in undeveloped reserves during 2022 as of the date hereof.
During the fiscal year ended 2021, the Company made an acquisition of an aggregate of 1,246 net acres of new properties located in Martin County, Texas that resulted in an increase of 194 MBO and 301 MMCF in proved producing reserves and 4,800 net acres in undeveloped acreage.
An aggregate of 5,719 MBO and 2,511 MMCF, of the Company’s proved undeveloped reserves as of September 30, 2021, 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, 2021.
An aggregate of 1,735 MBO and 678 MMCF, of the Company’s proved undeveloped reserves as of September 30, 2021, are scheduled to be developed after five years primarily due to the relatively high number of wells the Company plans to drill per year, the significant increase in the amount of the Company’s undeveloped acreage in 2021 resulting from the acquisition of properties in Martin County, Texas, the Company’s current limited resources, and the current availability of rigs and equipment required for drilling. Possible changes in commodity prices have also been considered by management when developing the Company’s drilling plans.
Drilling Activities
The Company did not drill any wells during the last three fiscal years. As at September 30, 2021, the Company had 95 gross wells and 17.29 net productive wells, with 89 wells producing oil and six wells producing natural gas, and the Company’s gross developed acreage totaled 5,177 and net developed acreage totaled 3,942 with the following geographic 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 | 2 | 1.44 | ||||||||||||
Oxy Yates | 680 | 489.60 | 2 | 1.44 | ||||||||||||
Bullard | 241 | 187.98 | 1 | 0.78 | ||||||||||||
Breedlove | 1,558 | 1,246.4 | 16 | 12.80 | ||||||||||||
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 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 3% of these leases have a term that expires within two years of the date of this prospectus.
Sales and Production
The average sales prices of the Company’s oil and gas products sold in the fiscal years ended September 30, 2021, 2020 and 2019 was $46.86, $38.51, and $51.79, respectively.
The Company’s net production quantities by final product sold in the fiscal years ended September 30, 2021, 2020, and 2019 was 30,623.69 Boe, 20,112.44 Boe, and 1,112.87 Boe, respectively.
The Company’s average production costs per unit for the fiscal years ended September 30, 2021, 2020, and 2019, was $23.56, $27.93, and $32.59, respectively.
The breakdown of production and prices between oil/condensate and natural gas was as follows:
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | 947 | 16,240 | 25,513 | |||||||||
Natural Gas (Mcf) | 1,410 | 9,196 | 13,121 |
Average Sales Price | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate ($/Bbl) | 58.36 | 41.09 | 49.67 | |||||||||
Natural Gas ($/Mcf) | 3.40 | 1.44 | 2.04 |
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
Henshaw
McMurtry-Loving
ODC San Andres
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | 14,464 | 11,570 | - | |||||||||
Natural Gas (Mcf) | 4,982 | 2,605 | - |
Breedlove “B” Clearfork Leases – Texas
The Breedlove “B” Clearfork properties situated in Martin County, Texas are over 12 contiguous sections for a total of 7,870.23 Grossgross and 7,741.67 Netnet 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.
Permex holds 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 100% working interest and an 81.75% net revenue interestdepth of 7,200 feet. Due to the high water concentrating in the Breedlove “B” Clearfork Property.fluid entry, management plans to install appropriate flow-lines from this well to the injections wells on the property prior to putting the well back on pump. By doing so management plans to reduce operating expenses from water disposal in third party disposal facilities.
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 consistconsists 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. PermexThe 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. PermexThe Company holds a 100% working interest in the lease and a 71.90% net revenue interest.
The Windy Jones Property consists of forty40 acres and includes two injection wells and two suspended oil wells. The sole purpose of the Windy Jones property is to provide waterflood to the offset wells being the Pittcock wells located east boundary of the Windy Jones property. PermexProperty. The Company holds a 100% working interest in the Windy Jones Property and a 78.9% net revenue interest.
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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. PermexThe Company holds a 100% working interest in the Mary Bullard Property and a 78.625% net revenue interest.
West Henshaw Property and Oxy Yates 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. PermexThe 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.
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. PermexThe Company holds a 100% working interest in the Oxy Yates Property and a 77% net revenue interest.
Royalty Interest Properties
During the year ended September 30, 2021, the Company acquired royalty interests in 73 producing oil and gas wells located in Texas and New Mexico for $179,095.
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 Permex on the 7,780 gross acre Breedlove oilfield. Drilling of the first well commenced on September 14, 2022. Management furthermore expects to commence lateral drilling and completion of the well by January 2024, subject to the Company acquiring the necessary financing.
An aggregate of 5,083 MBO and 2,136 MMCF, of the Company’s proved undeveloped reserves as of September 30, 2022, 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, 2022. Management currently anticipates spending approximately $10 million in capital expenditures towards developing the Company’s proved undeveloped reserves during the 2023 fiscal year, subject to the Company acquiring the necessary financing.
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Financing of Proved and Probable Undeveloped Reserves
The Company currently estimates that the total cost to develop the Company’s proved undeveloped reserves of 5,083.2 MBbl of oil and 2,136.4 Mcf of natural gas as of September 30, 2022 is $68,818,530. 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 7,334.3 MBbl of oil and 10,307.1 Mcf of natural gas as of September 30, 2022 is $107,884,900. 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 June 30, 2023, the Company held leases for 78 gross wells and had leases and royalty interests in an aggregate of 102 gross productive wells (including 73 wells that we acquired royalty interests in 2021). 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 | 6 | 4.32 | ||||||||||||
Oxy Yates | 680 | 489.60 | 5 | 3.60 | ||||||||||||
Bullard | 241 | 187.98 | 1 | 0.78 | ||||||||||||
Breedlove | 1,558 | 1,246.40 | 16 | 12.80 | ||||||||||||
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 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 expiry date that is less than two years from the date of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
Selected Annual Information
The following table sets out selected financial information for the Company which has been derived from the Company’s audited financial statements for the fiscal years ended September 30, 20212022 and 2020.2021.
Fiscal 2022 ($) | Fiscal 2021 ($) | |||||||
Revenues | 878,459 | 84,625 | ||||||
Net income (loss) | (2,714,616 | ) | (1,253,242 | ) | ||||
Net income (loss) per share - basic and diluted | (7.04 | ) | (7.38 | ) | ||||
Total assets | 12,567,558 | 6,941,302 | ||||||
Total non-current liabilities | 400,594 | 610,980 | ||||||
Dividends | — | — |
Fiscal 2021 ($) | Fiscal 2020 ($) | |||||||
Revenues | 84,625 | 682,786 | ||||||
Net income (loss) | (1,245,057 | ) | (1,249,202 | ) | ||||
Net income (loss) per share - basic and diluted | (0.03 | ) | (0.03 | ) | ||||
Total assets | 8,148,472 | 7,000,821 | ||||||
Total non-current liabilities | 1,685,851 | 929,740 | ||||||
Dividends | - | - |
Factors That Affect the Comparability of the Annual Financial Data Disclosed Above
Net losses for the years ended September 30, 20212022 and 20202021 were mainly attributable to general administrativeoperating expenses (2021(2022 - $590,239, 2020$3,778,693, 2021 - $498,752)$1,324,361) and loss on disposalother income/expense (2022 - income of properties (2021$185,618, 2021 - $613,457, 2020 - $879,070). The decrease inexpense of $13,506), partially offset by revenue in fiscal 2021 and 2020 is due to the significant decline in oil prices in the middle of the fiscal 2020. Oil production on all the Company’s properties were shut down for four months in fiscal 2020 due to a steep decline in the price of oil during 2020. The Company sold its interest in ODC San Andres Unit and W.J. “A” Taylor leases in October 2020. All otherfrom oil and gas wells remained shut down until May 2021.sales and royalty income (2022 - $878,459, 2021 - $84,625). The increase in total assets in fiscal 20212022 is due to the acquisitionnet proceeds of Breedlove “B” Clearfork properties.$7,044,472 raised from private placement financings. The decreasechange in non-current liabilities in fiscal 20202022 is mainly due to the reclassificationchanges in estimates on asset retirement obligations.
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Results of decommissioning obligations related to Operations
Selected Operating Data
Annual Sales and Production Results
The average sales prices of the Company’s oil and gas products sold in the fiscal years ended September 30, 2022, 2021, and 2020 was $89.14, $54.19, and $38.51, respectively.
The Company’s net production quantities by final product sold in the fiscal years ended September 30, 2022, 2021, and 2020, was 12,597.45 Boe, 1,182.70 Boe, and 17,772.14 Boe, respectively.
The Company’s average production costs per unit for the fiscal years ended September 30, 2022, 2021, and 2020, was $65.82, $40.94, and $32.59, respectively.
The breakdown of production and prices between oil/condensate and natural gas was as follows:
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 10,670 | 948 | 16,240 | |||||||||
Natural Gas (Mcf) | 11,567 | 1,410 | 9,196 |
Average Sales Price | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate ($/Bbl) | 96.18 | 62.37 | 41.09 | |||||||||
Natural Gas ($/Mcf) | 8.36 | 3.54 | 1.44 |
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 | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 6,998 | — | — | |||||||||
Natural Gas (Mcf) | 11,567 | 419 | — |
Henshaw
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 2,189 | — | — | |||||||||
Natural Gas (Mcf) | — | — | — |
Pittcock & Mary Bullard
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 1,483 | 847 | 291 | |||||||||
Natural Gas (Mcf) | — | — | — |
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ODC San Andres Unit and W.J. “A” Taylor leases to current liabilities held for sale. The increase in non-current liabilities in fiscal 2021 is due to the recognition of decommissioning obligations related to the newly acquired Breedlove “B” Clearfork properties.
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | — | — | 15,948 | |||||||||
Natural Gas (Mcf) | — | — | 2,605 |
Discussion of Operations
Years Ended September 30, 2021 and 2020
During the year ended September 30, 2021,2022, the Company reported a net loss of $1,245,057$2,714,616 as compared to a net loss of $1,249,202$1,253,242 for the year ended September 30, 2020. Revenue2021. The net loss for fiscal 2022 was mainly attributable to operating expenses of $3,778,693 compared to operating expenses of $1,324,361 in fiscal 2021, being partially offset by revenue from oil and gas production decreased 93%sales and royalty income of $878,459 in fiscal 2022 compared to $84,625 in fiscal 2021.
The Company reported oil and gas sales revenue of $815,391 in fiscal 2022 compared with revenue of $46,703 (2020 - $682,786).in 2021. The decrease isincrease was mainly due to revenue generated from sales of oil and gas extracted from our Breedlove “B” Clearfork properties that were acquired at the resultend of fiscal 2021, which accounted for 70% of the sale of ODC San Andres UnitCompany’s oil and W.J. “A” Taylor leasesgas sales in October 2020 and the complete shutdown of production from July 2020 in response to the steep decline in oil price. During the last six months of 2021, thecurrent year. The Company has been working to bring thealso brought Pittcock North, Mary Bullard, and West Henshaw propertieswells back online. online during the second quarter of fiscal 2022. Net oil-equivalent production by final product sold in fiscal 2022 average 34.51 barrels per day, compared with 3.24 barrels per day in fiscal 2021.
The Pittcock North and Mary Bullard wells generated the first oil salesproduction expenses for fiscal 2022 were $829,194 compared with $59,671 in Junefiscal 2021. The royalty income of $37,922 (2020 - $Nil) is generated from royalty interests acquiredincrease was mostly due to the increase in early 2021. The Company has acquired royalty interestsproduction in 732022 compared to 2021 combined with increased maintenance expenses related to bringing the West Henshaw wells locatedback online in Texas and New Mexico for a total investment of $179,095.2022.
The general and administrative expenses excluding depletion and depreciation and share-based payment expenses for fiscal 2022 were $2,250,060, compared with $493,511 in fiscal 2021. This increase in 2022 from 2021 was mainly due to the ended September 30,increase in capital raising and marketing activities during 2022. Specifically, the variance in 2022 from 2021 were $526,890 (2020 - $457,286) and were generally consistent with fiscal 2020. Some of the significant expense items are summarized as follows:was mainly attributable to:
● | Accounting and audit fees of |
● | |
● | Legal fees of $351,975 (2021 - $14,803), which increased in 2022 from 2021 mostly due to the work related to the preparation of the Registration Statement and the increased regulatory compliance requirements in the United States in connection with the Company becoming required to file periodic and current reports under Exchange Act in 2022 |
● | |
Management fees of | |
● | Marketing and promotion expenses of $607,207 (2021 - $27,251), which mainly included costs of marketing firms for investor awareness programs and promotion campaigns. |
● | Office and general of $175,043 (2021 - $32,203), which have increased in 2022 from 2021 mostly due to the increase in corporate activities in general. |
Depreciation and depletion expenses (2022 - $105,503, 2021 - $60,479) increased in fiscal 2022 from 2021 primarily due to Breedlove acquisition at the end of fiscal 2021 and increased production.
The Company also incurred share-based compensation expenses of $546,335 in fiscal 2022 compared to $2,870 in fiscal 2021, mostly as a result of the Company granting 3,300,000 stock options to the Company’s directors and consultants in October 2021. Share-based compensation expenses of $2,870 (2020 - $4,175),are a non-cash charge that are the estimated fair value of the stock options granted and vested during the period. The Company used the Black-Scholes option pricing model for the fair value calculation.
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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, 2023 and 2022, and the fiscal year ended September 30, 2022 was $72.59/Boe, $88.39/Boe, and $89.14/Boe, respectively. The average sales prices of the Company’s oil and gas products sold in the three months ended June 30, 2023 and 2022 was $66.91/Boe and $102.05/Boe, respectively.
The Company’s net production quantities by final product sold in the nine months ended June 30, 2023 and 2022, and the fiscal year ended September 30, 2022 was 10,260.71 Boe, 8,903.60 Boe, and 12,597.45 Boe, respectively. The Company’s net production quantities by final product sold in the three months ended June 30, 2023 and 2022 was 3,258.07 Boe and 3,404.75 Boe, respectively.
The Company’s average production costs per unit for the nine months ended June 30, 2023 and 2022, and the fiscal year ended September 30, 2022, was $74.33/Boe, $37.33/Boe, and $65.82/Boe, respectively. The Company’s average production costs per unit for the three months ended June 30, 2023 and 2022 was $72.29/Boe and $39.79/Boe, respectively.
The breakdown of production and prices between oil/condensate and natural gas was as follows:
Net Production Volumes | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | ||||||||||||
Oil/Condensate (Bbl) | 3,022 | 2,945 | 9,589 | 7,325 | ||||||||||||
Natural Gas (Mcf) | 1,418 | 2,757 | 4,030 | 9,474 |
Average Sales Price | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | ||||||||||||
Oil/Condensate ($/Bbl) | 70.29 | 110.08 | 75.49 | 97.17 | ||||||||||||
Natural Gas ($/Mcf) | 3.95 | 8.44 | 5.20 | 7.94 |
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, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | ||||||||||||
Oil/Condensate (Bbl) | 1,961 | 2,109 | 6,534 | 4,897 | ||||||||||||
Natural Gas (Mcf) | 1,418 | 2,757 | 4,030 | 9,474 |
Henshaw
Net Production Volumes | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | ||||||||||||
Oil/Condensate (Bbl) | 898 | 505 | 2,385 | 1,266 | ||||||||||||
Natural Gas (Mcf) | - | - | - | - |
Pittcock & Mary Bullard
Net Production Volumes | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | ||||||||||||
Oil/Condensate (Bbl) | 163 | 332 | 670 | 1,161 | ||||||||||||
Natural Gas (Mcf) | - | - | - | - |
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Operating Results for the Three and Nine Months Ended June 30, 2023 Compared to June 30, 2022
Three Months Ended June 30, 2023 and 2022
During the year ended September 30, 2021, the Company assessed a loss of $613,457 on the sale of the Peavy leases and office equipment (2020 - $879,070 on the ODC and Taylor leases). The Company also realized a loss of $50,165 (2020 - $Nil) on forfeiture of reclamation deposit.
Three Months Ended March 31, 2022 and 2021
During thethree months ended March 31, 2022,June 30, 2023, the Company reported a net loss of $144,944$909,593 as compared to a net loss of $196,023$888,669 for the three months ended March 31, 2021. Revenue forJune 30, 2022 mostly as a result of decreased revenue during the secondthird quarter consisted of 2023 compared to the same quarter in 2022.
The Company reported oil and gas sales revenue of $228,497 (2021 - $40) and royalty income of $13,389 (2021 - $nil). Revenue from$156,716 in the Company’s newly acquired Breedlove “B” Clearfork leases accounted for 64%third quarter of the totalcurrent fiscal year compared with revenue of $258,757 in the same quarter during the last fiscal year. The decrease was mainly due to the decrease in oil and gas sales. The Company also brought Pittcock North, Mary Bullard, and West Henshaw wells back online duringprices in the secondcurrent quarter to $66.91/Boe from $102.05/Boe in the comparative quarter. The direct producing and operating expenses were $115,000, approximately 51%Net oil-equivalent production by final product sold in the current quarter averaged 35.80 barrels per day, compared with 25.87 barrels per day in the same quarter of the gross sales. previous fiscal year.
The general administrative expenses excluding depletion and depreciation, and share-based paymentCompany’s total operating expenses for the three months ended March 31,June 30, 2023 was $1,072,760 compared to $1,247,531 for the same period in 2022. The decrease in total operating expenses in the third quarter of 2023 compared to the third quarter of 2022 were $213,783 (2021 - $132,526). The variance was mainly attributable to accountingdecreased general and audit fees of $51,280 (2021 - $18,397), investor relations of $18,266 (2021 - $1,351), legal fees of $18,435 (2021 - $nil), and management fees of $59,393 (2021 - $37,513). The increase is mainly due to the increased field and general corporate activities as a result of the increased oil and gas productions and the brokered financing completedadministrative expenses in the secondcurrent quarter to $788,659 compared to $1,053,070 for the comparative quarter. The most significant decrease was marketing and promotion expenses, which decreased by $380,453 from $469,096 in the third quarter of 2022 to $88,643 in the third quarter of 2023.
SixNine Months Ended March 31,June 30, 2023 and 2022 and 2021
During the sixnine months ended March 31, 2022,June 30, 2023, the Company reported a net loss of $967,709$3,330,107 as compared to a net loss of $307,356$1,797,785 for the sixnine months ended March 31, 2021. RevenueJune 30, 2022. The increase in net loss for the first sixthree quarters of the current fiscal year compared to the same period in 2022 was mainly attributable to operating expenses increasing to $3,929,106 in the first nine months consisted of the current fiscal year compared to operating expenses of $2,572,367 in the same period in the previous fiscal year, combined with revenue from oil and gas sales of $318,487 (2021 - $3,094) and royalty income of $29,848 (2021 - $nil). Revenue$559,599 in the first nine months of the current fiscal years compared to $625,057 in the same period during our 2022 fiscal year.
The Company reported oil and gas sales revenue of $541,459 in the first three quarters of the current fiscal year compared with revenue of $577,244 in the same period during the last fiscal year. The decrease was mainly due to the decrease in oil and gas prices in the current period to $72.59/Boe from $88.39/Boe in the comparative period, being partially offset by increased production during first nine months of the Company’s newly 5 acquiredcurrent fiscal year. The production from Breedlove “B” Clearfork leases accounted for 67.5%properties and Henshaw property increased 10% and 88%, respectively, from the comparative period. Net oil-equivalent production by final product sold in the current period averaged 37.59 barrels per day, compared with 32.49 barrels per day in the same period of the total oil and gas sales. previous fiscal year.
The Company also brought Pittcock North, Mary Bullard,production expenses for the nine months ended June 30, 2023 were $762,668 compared with $332,346 in the nine months ended June 30, 2022. The increase was mostly due to the increase in production in the current fiscal period compared to the same period in the previous fiscal year combined with increased maintenance expenses on the Breedlove and West Henshaw wells back online during the second quarter. For the three and six months, the company has produced 35 bopd and 43 bopd, respectively. The direct producing and operating expenses were $196,879, approximately 62% of the gross sales.wells.
The general and administrative expenses excluding depletion and depreciation and share-based payment expenses for the sixnine months ended March 31, 2022June 30, 2023 were $418,575 (2021 - $218,489).$3,013,987, compared with $1,462,183 in the nine months ended June 30, 2022. The increase was mainly due to the increase in property development and corporate activities in general during in the current fiscal period. Specifically, the variance in the first nine months of the current fiscal year from the same period in the previous fiscal year was mainly attributable to:
● | Accounting and audit fees of | |
● | Consulting fees of $172,698 in the current period compared to $64,209 in the same period of the | |
● | Insurance expense of $190,556 in the current period compared to $38,753 in the same period of the previous fiscal year. The increase in the current period from the same period in the previous fiscal year was due to the increase in property development and corporate activities in | |
● | ||
● | Salaries expenses of |
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Liquidity and Capital Resources
As at March 31,September 30, 2022, the Company had a cash balance of $6,727,758,$3,300,495, an increase of $6,701,952$3,274,689 from the cash balance of $25,806 on September 30, 2021. During the six monthsyear ended March 31,September 30, 2022, cash used in the operating activities is $245,954.was $2,024,023. The Company spent $75,834 oninvested $1,685,999 in capital expenditures on its oil and gas assets and $27,774 on office lease payments. Thein fiscal 2022, compared to $265,717 invested in fiscal 2021. Financing activities provided the Company receivedwith cash of $6,984,711 mostly as a result of the Company receiving net proceeds of $7,050,714$7,044,472 from private placement financings, and paid outstanding interestbeing partially offset by the repayment of $18,960 on the debenture loan.
a loan using $23,600 of cash. The Company had a working capital of $6,243,776$2,051,127 as at March 31,September 30, 2022 compared to a working capital deficiency of $465,129 as at September 30, 2021.
As at SeptemberJune 30, 2021,2023, the Company had a cash balance of $25,806, an increase$764,386, a decrease of $20,289$2,536,109 from the cash balance of $5,517$3,300,495 on September 30, 2020.2022. During the yearnine months ended SeptemberJune 30, 2021,2023, cash used in operating activities was $720,987.$1,936,206. The Company spent $250,581 oninvested $1,249,704 in capital expenditures on its oil and gas assets and $43,932 on office lease payments.in the first nine months of the current fiscal year, compared to $201,698 invested in the comparative nine months of the previous fiscal year. The Company receivedraised net proceeds of $1,123,244$688,092 from the saleexercise of ODC San Andres Unitwarrants and W.J. “A” Taylor leases. The Company repaid $38,291 of a debenture loan of $79,000 and a related party loan of $8,455 during fiscal 2021.loan.
The Company had a working capital deficiency of $465,129$2,501,571 as at June 30, 2023 compared to a working capital of $2,051,127 as at September 30, 2021 compared2022.
Management has currently budgeted approximately $10 million in capital expenditures for the 2024 fiscal year, which the Company plans to workingfinance principally from one or more equity financings and/or a line or credit. 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 drill and complete our wells, our ability to complete an equity financing or to secure a suitable line of $227,815 as at September 30, 2020.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 expects to investhas budgeted investments of additional capital onin the continued development of itsour oil and gas operations, the Company currently does not have any material commitments for capital expenditures. As of both March 31, 2022 and the date of this prospectus,However, the Company hasdoes not have sufficient working capital to meet its anticipated operating and capital requirements.requirements over the next 12 months from the filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and, consequently, the Company is currently evaluating options to support its 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.
Related Party Transactions
Year Ended September 30, 2021 and 2020
During the year ended September 30, 2020, the Company issued a total of $150,000 (C$200,000) in convertible debentures to the CEO and a director of the Company on October 17, 2019 and February 21, 2020, respectively, for cash. The debentures are secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, have a maturity date of September 30, 2021 and February 20, 2022, and bear interest at a rate of 12% per annum, payable on maturity. The debentures are convertible at the holder’s option into units of the Company at $0.12 (C$0.15) per unit. Each unit will be comprised of one common share of the Company and one share purchase warrant; each warrant entitles the holder to acquire one additional common share for a period of three years at an exercise price of $0.16. During the year ended September 30, 2021, the Company repaid $79,000 (C$100,000) of the convertible debenture together with accrued interest of $13,090. During the year ended September 30, 2021 and 2020, the Company accrued interest of $9,480 and $13,991, respectively, and is included within amounts due to related party on the consolidated balance sheets. As at September 30, 2021, $78,500 (C$100,000) of debenture loan remained outstanding and the interest accrued on the loan was $15,176 (2020 - $14,104).
The Company entered into the following transactions relating to key management personnel and entities over which they have control or significant influence during the year ended September 30, 2021:
The Company has entered into an employment agreement with the CEO of the Company for an annual base salary of $150,000, with no specified term. The employment agreement may be terminated with a termination payment equal to twelve months of accrued base salary and a bonus equal to 20% of the annual salary. Effective October 1, 2021, the annual base salary has been increased to $200,000.
Six Months Ended March 31, 2022 and 2021
As at March 31, 2022, the Company had a convertible debenture of $80,000 (C$100,000) due to the CEO. The debentures are secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, have a maturity date of August 20, 2022, and bear interest at a rate of 12% per annum, payable on maturity. The debentures are convertible at the holder’s option into units of the Company at $0.12 (C$0.15) per unit. Each unit will be comprised of one common share of the Company and one share purchase warrant; each warrant entitles the holder to acquire one additional common share for a period of three years at an exercise price of $0.16. During the six months ended March 31, 2022 and 2021, the Company recorded interest of $3,688 and $9,768, respectively, and is included within amounts due to related party on the consolidated balance sheets.
During the six month period ended March 31, 2022, the Company incurred management fees of $109,773 (2021 - $75,116) to a company controlled by the CEO of the Company.
The Company had entered into an employment agreement with the CEO of the Company for an annual base salary of $200,000, with no specified term. The employment agreement may be terminated with a termination payment equal to twelve months of base salary and a bonus equal to 20% of the annual salary.
Subsequent to March 31, 2022, the Company amended the employment with the CEO of the Company for an annual base salary of $250,000, with no specified term. The CEO is also eligible on an annual basis for a cash bonus of up to 100% of annual salary. The employment agreement may be terminated with a termination payment equal to three years of base salary and a bonus equal to 20% of the annual base salary.
Subsequent to March 31, 2022, the Company entered into an employment 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. The employment agreement may be terminated with a termination payment equal to two months of base salary.
Critical Accounting Estimates
The preparation of the Company’s consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amountsamount of assets and liabilities at the date of the financial statements and the reported amountsamount of revenue and expenses during the reporting period. Actual results could differ from these estimates. The Company’s management reviewsManagement evaluates these estimates and underlyingjudgments 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 based onusing historical experience and other factors, including expectationsthe current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of future eventsthe date of the financial statements; therefore, actual results could differ from those estimates.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are believeddeemed to be reasonablea large accelerated filer under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Significant areas requiring the use of management estimates include:
Decommissioning obligations
Decommissioning obligations require the use of management’s best estimates of future decommissioning expenditures, expected timing of expenditures and future inflation rates. A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessmentsrules of the time value of money and the risk specific to the liability. Provisions are not recognized for future operating losses.SEC.
Provisions for decommissioning associated with the Company’s oil and gas operations are based on current legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and cash outflows may differ from estimates due to changes in laws and regulations, public expectations, prices, discovery and analysis of site conditions and changes in clean up technology. Estimates are made using internal and external information.BUSINESS
DepreciationOverview
Equipment is amortized over the estimated useful life of the assets. Changes in the estimated useful lives or depreciation rate used could significantly increase or decrease the amount of depreciation recorded during the period and the carrying value of equipment.
Petroleum and natural gas interests
Reserves resources are used in the unit-of-production calculation for depreciation and depletion and the impairment analysis, which affects net loss. There are numerous uncertainties inherent in estimating petroleum and natural gas (“P&NG”) reserves. Estimating reserves is complex, requiring many judgments based on geological, geophysical, engineering and economic data. Changes in these judgments could have a material impact on the estimated reserves. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available and as the economic environment changes.
Share-based payments
The determination of the fair value of stock options and agent’s warrants using stock pricing models, require the input of highly subjective assumptions, including the expected price volatility. Changes in the subjective input assumptions could materially affect the fair value estimate.
Financial Instruments
The Company classified its financial instruments as follows: cash, trade and other receivables, and reclamation deposits as subsequently measured at amortized cost; and trade and other payables, amounts due to related parties, loan payable, and convertible debentures – loan component as subsequently measured at amortized cost financial liabilities.
The carrying amount of cash, trade and other receivables, reclamation deposits, trade and other payables, amounts due to related parties, loan payable, and convertible debentures carried at amortized cost is a reasonable approximation of fair value due to the relatively short period to maturity of these financial instruments and/or the rate of interest being charged.
Financial risk management
The Company’s financial risks arising from its financial instruments are credit risk, liquidity risk, foreign currency exchange risk, interest rate risk and commodity price risk. The Company’s exposures to these risks and the policies on how to mitigate these risks are set out below. Management monitors and manages these exposures to ensure appropriate measures are implemented on a timely basis and in an effective manner.
Credit risk
Credit risk is the risk of potential loss to the Company if the counter party to a financial instrument fails to meet its contractual obligations. The credit risk of the Company is associated with cash, trade and other receivables, and reclamation deposits. The credit risk with respect to its cash and reclamation deposits is minimal as they are held with high-credit quality financial institutions. The Company’s Goods and Services Tax recoverable is due from the Canadian Government. Management does not expect these counterparties to fail to meet their obligations. The Company does not anticipate any default of its trade receivables, as it transacts with creditworthy customers and management does not expect any losses from non-performance by these customers.
Liquidity risk
Liquidity risk is the risk that the Company will not meet its obligations associated with its financial liabilities as they fall due. The Company performs cash flow forecasting to ensure sufficient cash is available to fund its projects and operations. As at September 30, 2021, the Company has current assets of $84,941 and current liabilities of $550,070. The Company’s financial liabilities include accrued expenses and trade and other payables which have contractual maturities of 30 days or are due on demand and debenture loan due within the next 12 months.
At present, the Company’s operations do not generate positive cash flows. The Company’s primary source of funding has been the issuance of equity securities through private placements and revenue from oil and gas production. Despite previous success in acquiring these financings, there is no guarantee of obtaining future financings.
Foreign exchange rate risk
Foreign currency exchange risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s administrative expenditures are transacted in Canadian dollars. The Company funds its oil and gas operations in the United States by using United States dollars (“US dollars”) converted from its Canadian bank accounts. At September 30, 2021, the Company had financial assets of $5,846 and financial liabilities of $106,456 denominated in Canadian dollars. A 10% strengthening of the US dollar would affect net loss by approximately $10,000. The Company does not hedge its foreign exchange risk.
Interest rate risk
The Company is exposed to interest rate risk arising from cash held in Canadian financial institutions. The interest rate risk on cash is not considered significant due to its short-term nature and maturity. The exposure to interest rates for the Company is considered minimal. The Company has not used any financial instrument to hedge potential fluctuations in interest rates.
Commodity price risk
Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in the price of oil and natural gas. Commodity prices are impacted by world economic events that affect supply and demand, which are generally beyond the Company’s control. Changes in crude oil prices may significantly affect the Company’s results of operations, cash generated from operating activities, capital spending and the Company’s ability to meet its obligations. The Company manages this risk by constantly monitoring commodity prices and factoring them into operational decisions, such as contracting or expanding its capital expenditures program.
Outstanding Share Data
The Company had the following common shares, stock options and warrants outstanding as of July 11, 2022.
Overview
We are an independent energy company engaged in the acquisition, exploration, development and production of oil and natural gas properties on private, state and federal land in the United States, primarily in the Permian Basin region of West Texas and Southeast New Mexico which includes the Midland – Central Basin and Delaware Basin. We focus on acquiring producing assets at a discount to market, increasing production and cash-flow through recompletion and re-entries, secondary recovery and lowerreducing risk by infill drilling and development. Currently, we own and operate various oil and gas properties located in Texas and New Mexico. In addition, we hold variousas well as royalty interests in 73 wells and 5five permitted wells across 3,800 acres within the Permian Basin of West Texas and southeast New Mexico. Moreover,Basin. Overall, we own and operate more than 78 oil and gas wells, have more than 11,700 net acres of production oil and gas assets, 6762 shut-in opportunities, 17 salt water disposal wells eliminating water disposal fees and decreasing OPEX and 2two water supply wells allowing for waterflood secondary recovery.
Business Strategy
Oil and Gas Properties
The Company hired MKM Engineering, who prepared for the Company the Appraisal Reports. MKM Engineering is independent with respect to Permex Petroleum Corporation as provided in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. MKM Engineering’s estimates of the Company’s proved and probable reserves in each of the Appraisal Reports were prepared according to generally accepted petroleum engineering and evaluation principles, and each of the Appraisal Reports conform to SEC Pricing. The Appraisal Reports are each filed as an exhibit to the registration statement for which this prospectus is a part of.
The Appraisal Reports were each specifically prepared by Michele Mudrone, an employee of MKM Engineering, a registered Professional Engineer in the State of Texas, and a member of the Society of Petroleum Engineers. Ms. Mudrone graduated from the Colorado School of Mines with a Bachelor of Science degree in Petroleum Engineering in 1976 and has been employed in the petroleum industry and directly involved in reservoir engineering, petrophysical analysis, reservoir simulation and property evaluation since that timetime. Ms. Mudrone certified in each Appraisal Report that she did not receive, nor expects to receive, any direct or indirect interest in the holdings discussed in the report or in the securities of the Company. Because the Company’s current size, the Company does not have any technical person at the Company responseresponsible for overseeing the preparation of the reserve estimates presented herein (or have any internal control policies pertaining to estimates of oil and gas reserves), and consequently, the Company relies exclusively on the Appraisal Reports in the preparation of the reserve estimates present in this prospectus.
Since all of the Company’s reserves are from conventional reservoirs, MKM Engineering assumed for the purposes of its appraisal reports that the technology to be used to develop the Company’s reserves would include horizontally drilled wells, fracturing, and acidizing.
The following tables show a summary of our reserves as of September 30, 20212022 and September 30, 20202021 which have been derived from the Appraisal Reports and conform to SEC Pricing.
Composite Proved Reserve Estimates and Economic Forecasts for the year ended September 30, 2021.2022
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||||||||||||||||||
Net Reserves | ||||||||||||||||||||||||||||||||||||
Oil/Condensate | MBbl | 8,041.4 | 399.3 | 188.1 | 7,454.0 | MBbl | 6,237.1 | 444.6 | 709.3 | 5,083.2 | ||||||||||||||||||||||||||
Natural Gas | Mcf | 3,600.7 | 314.4 | 97.5 | 3,188.8 | |||||||||||||||||||||||||||||||
Gas | Mcf | 3,001.2 | 286.2 | 578.6 | 2,136.4 | |||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
Oil/Condensate | M$ | 447,285.1 | 21,930.1 | 10,468.6 | 414,896.4 | M$ | 572,090.2 | 40,485.1 | 65,032.6 | 466,572.5 | ||||||||||||||||||||||||||
Natural Gas | M$ | 10,620.9 | 949.0 | 281.0 | 9,384.9 | |||||||||||||||||||||||||||||||
Gas | M$ | 17,390.7 | 1,736.5 | 3,287.4 | 12,366.8 | |||||||||||||||||||||||||||||||
Severance and Ad Valorem Taxes | M$ | 35,509.2 | 1,927.3 | 774.5 | 32,807.4 | M$ | 43,493.7 | 3,633.2 | 4,955.7 | 34,904.8 | ||||||||||||||||||||||||||
Operating Expenses | M$ | 59,842.5 | 8,048.8 | 3,057.0 | 48,736.7 | M$ | 48,136.3 | 11,893.8 | 5,610.1 | 30,632.4 | ||||||||||||||||||||||||||
Investments | M$ | 116,944.9 | 791.9 | 689.6 | 115,463.4 | M$ | 71,700.0 | 806.9 | 2,074.6 | 68,818.5 | ||||||||||||||||||||||||||
Operating Income (BFIT) | M$ | 245,609.4 | 12,101.2 | 6,294.4 | 227,273.8 | M$ | 426,150.9 | 25,887.7 | 55,679.6 | 344,583.6 | ||||||||||||||||||||||||||
Discounted @ 10% | M$ | 100,517.6 | 6,356.0 | 3,644.6 | 90,517.0 | M$ | 198,619.1 | 12,057.6 | 34,831.6 | 151,729.9 |
Composite Proved Reserve Estimates and Economic Forecasts for the year ended September 30, 2020.2021
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||||
Net Reserves | ||||||||||||||||||
Oil/Condensate | MBbl | 6,199.4 | 399.3 | 188.1 | 5,612.0 | |||||||||||||
Natural Gas | Mcf | 3,018.3 | 314.4 | 97.5 | 2,606.4 | |||||||||||||
Revenue | ||||||||||||||||||
Oil/Condensate | M$ | 347,051.0 | 21,920.1 | 10,468.6 | 314,662.3 | |||||||||||||
Natural Gas | M$ | 8,906.8 | 949.0 | 286.9 | 7,670.9 | |||||||||||||
Severance and Ad Valorem Taxes | M$ | 26,171.1 | 1,927.3 | 774.5 | 23,469.3 | |||||||||||||
Operating Expenses | M$ | 43,511.4 | 8,048.8 | 3,057.0 | 32,405.6 | |||||||||||||
Investments | M$ | 71,700.0 | 791.9 | 689.6 | 70,218.5 | |||||||||||||
Operating Income (BFIT) | M$ | 214,575.4 | 12,101.2 | 6,234.4 | 196,239.8 | |||||||||||||
Discounted @ 10% | M$ | 100,772.6 | 6,356.0 | 3,644.6 | 90,772.0 |
Proved | Proved Developed Producing | Proved Non-Producing | Proved Undeveloped | |||||||||||||
Net Reserves | ||||||||||||||||
Oil/Condensate | MBbl | 4,553.6 | 254.9 | 294.5 | 4,004.2 | |||||||||||
Gas | Mcf | 849.6 | 64.9 | 17.6 | 767.1 | |||||||||||
Revenue | ||||||||||||||||
Oil/Condensate | M$ | 183,306.9 | 10.201.3 | 12,077.9 | 161,027.7 | |||||||||||
Gas | M$ | 1,513.4 | 58.7 | 32.6 | 1,422.2 | |||||||||||
Severance and Ad Valorem Taxes | M$ | 15,043.0 | 903.6 | 863.4 | 13,276.1 | |||||||||||
Operating Expenses | M$ | 46,961.1 | 5,590.5 | 2,818.4 | 38,552.1 | |||||||||||
Investments | M$ | 47,250.1 | 630.1 | 807.0 | 45,813.0 | |||||||||||
Operating Income (BFIT) | M$ | 75,566.1 | 3,135.8 | 7,621.7 | 64,808.6 | |||||||||||
Discounted @ 10% | M$ | 27,835.8 | 1,806.4 | 4,057.6 | 21,971.8 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2022
Probable | Probable Developed Producing | Probable Non-Producing | Probable Undeveloped | |||||||||||||
Net Reserves | ||||||||||||||||
Oil/Condensate | MBbl | 7,452.1 | 1.9 | 115.9 | 7,334.3 | |||||||||||
Gas | Mcf | 10,323.8 | 10.5 | 6.2 | 10,307.1 | |||||||||||
Revenue | ||||||||||||||||
Oil/Condensate | M$ | 680,179.1 | 164.4 | 10,469.2 | 669,545.5 | |||||||||||
Gas | M$ | 62,309.3 | 64.5 | 38.3 | 62,206.5 | |||||||||||
Severance and Ad Valorem Taxes | M$ | 41,500.1 | 28.4 | 750.3 | 40,721.4 | |||||||||||
Operating Expenses | M$ | 50,223.2 | 73.9 | 1,112.6 | 49,036.7 | |||||||||||
Investments | M$ | 107,884.9 | — | — | 107,884.9 | |||||||||||
Operating Income (BFIT) | M$ | 542,880.1 | 126.6 | 8,644.5 | 534,109.0 | |||||||||||
Discounted @ 10% | M$ | 229,567.4 | 53.4 | 3,247.1 | 226,266.9 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2021
Probable | Probable Non- Producing | Probable Undeveloped | Probable | Probable Non-Producing | Probable Undeveloped | |||||||||||||||||||||||||
Net Reserves | ||||||||||||||||||||||||||||||
Oil/Condensate | MBbl | 13,770.1 | 119.8 | 13,650.3 | MBbl | 7,466.5 | 119.8 | 7,346.7 | ||||||||||||||||||||||
Natural Gas | Mcf | 11,156.9 | 6.3 | 11,150.6 | Mcf | 10,252.1 | 6.3 | 10,245.8 | ||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||
Oil/Condensate | M$ | 759,792.4 | 6,686.4 | 753,106.0 | M$ | 411,745.8 | 6,686.4 | 405,059.4 | ||||||||||||||||||||||
Natural Gas | M$ | 32,834.6 | 18.4 | 32,816.2 | M$ | 30,171.8 | 18.4 | 30,153.4 | ||||||||||||||||||||||
Severance and Ad Valorem Taxes | M$ | 23,516.7 | 478.1 | 23,038.6 | M$ | 23,511.2 | 478.1 | 23,033.1 | ||||||||||||||||||||||
Operating Expenses | M$ | 78,965.6 | 1,061.2 | 77,904.4 | M$ | 50,336.3 | 1,061.2 | 49,275.1 | ||||||||||||||||||||||
Investments | M$ | 260,004.9 | - | 260,004.9 | M$ | 102,884.9 | — | 102,884.9 | ||||||||||||||||||||||
Operating Income (BFIT) | M$ | 430,139.7 | 5,165.5 | 424,974.2 | M$ | 265,185.3 | 5,165.5 | 260,019.8 | ||||||||||||||||||||||
Discounted @ 10% | M$ | 120,489.5 | 1,957.5 | 118,532.0 | M$ | 123,329.8 | 1,957.5 | 121,372.3 |
Composite Probable Reserve Estimates and Economic Forecasts for the year ended September 30, 2020
Probable | Probable Non- Producing | Probable Undeveloped | ||||||||||||||
Net Reserves | ||||||||||||||||
Oil/Condensate | MBbl | 3,557.8 | 121.9 | 3,435.9 | ||||||||||||
Natural Gas | Mcf | 7,405.9 | 6.3 | 7,399.6 | ||||||||||||
Revenue | ||||||||||||||||
Oil/Condensate | M$ | 142,754.7 | 5,024.7 | 137,730.0 | ||||||||||||
Natural Gas | M$ | 14,551.4 | 12.3 | 14,539.1 | ||||||||||||
Severance and Ad Valorem Taxes | M$ | 18,159.2 | 359.4 | 17,799.8 | ||||||||||||
Operating Expenses | M$ | 21,959.5 | 952.6 | 21,006.9 | ||||||||||||
Investments | M$ | 50,784.9 | - | 50,784.9 | ||||||||||||
Operating Income (BFIT) | M$ | 66,402.5 | 3,725.0 | 62,677.5 | ||||||||||||
Discounted @ 10% | M$ | 26,959.4 | 1,489.9 | 25,469.5 |
Probable reserves are unproven reserves that geologic and engineering analyses suggest are more likely than not to be recoverable,recoverable. They are not comparable to proved reserves and estimates of oil, condensate, and gas reserves and future net revenue should be regarded only as estimates that may change as further production history and additional information become available. Such reserve and revenue estimates are based on the information currently available, the interpretation of which is subject to uncertainties inherent in applying judgmental factors.
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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. During the fiscal year ended September 30, 2021, the Company did not commence drilling on any undeveloped acreage and no undeveloped reserves were converted into proved developed reserves. The Company has also did not make any investments in, or make any progress towards, converting provedstarted development and conversion of its undeveloped reserves to proved developed reserves during the year ended September 30, 2021. The Company also has not begun drilling on any undeveloped acreage or make any investments in undeveloped reserves during 2022 as of the date hereof.
During the fiscal year ended 2021, the Company made an acquisition of an aggregate of 1,246 net acres of new properties located in Martin County, Texas that resulted in an increaseTexas. The PPC Eoff #3 well, operated by Permex Petroleum, is the first of 194 MBOtwo 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 furthermore expects to commence lateral drilling and 301 MMCF in proved producing reserves and 4,800 net acres in undeveloped acreage.completion of the well by January 2024, subject to receipt of additional funding.
An aggregate of 5,7195,083 MBO and 2,5112,136 MMCF, of the Company’s proved undeveloped reserves as of September 30, 2021,2022, 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, 2021.
An aggregate of 1,735 MBO and 678 MMCF, of2022. Management currently anticipates spending approximately $10 million in capital expenditures towards developing the Company’s proved undeveloped reserves during the 2023 fiscal year, subject to the Company acquiring the necessary financing.
Proved Undeveloped Reserves Additions
From September 30, 2021 to September 30, 2022, the Company had no proved undeveloped reserve additions. The specific changes to the Company’s proved undeveloped reserves from September 30, 2021 to September 30, 2022 were as follows:
Breedlove | Gaines County | Henshaw | Royalty Wells | Total | ||||||||||||||||
Beginning balance at September 30, 2021 (MBoe)(1) | 5,584.14 | 336.09 | — | 0.22 | 5,920.45 | |||||||||||||||
Production (MBoe)(1) | — | — | — | — | — | |||||||||||||||
Revisions or reclassifications of previous estimates (MBoe)(1) | (589.17 | ) | — | — | — | (589.17 | ) | |||||||||||||
Improved Recovery (MBoe)(1) | — | — | — | — | — | |||||||||||||||
Extensions and Discoveries (MBoe)(1) | — | — | — | — | — | |||||||||||||||
Acquisitions/Purchases (MBoe)(1) | — | — | — | — | — | |||||||||||||||
Sales (MBoe)(1) | — | — | — | — | — | |||||||||||||||
Price Change (MBoe) | (28.54 | ) | 6.02 | — | — | (22.52 | ) | |||||||||||||
Ending balance as of September 30, 2022 (MBoe)(1) | 4,946.43 | 342.11 | — | 0.22 | 5,308.76 |
(1) | Natural gas volumes have been converted to Boe based on energy content of six Mcf of gas to one Bbl of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, in the year ended September 30, 2022, the average prices of WTI (Cushing) oil and NYMEX Henry Hub natural gas were $91.71 per Bbl and $6.126 per Mcf, respectively, resulting in an oil-to-gas ratio of just under 14 to 1. |
Financing of Proved and Probable Undeveloped Reserves
The Company currently estimates that the total cost to develop the Company’s proved undeveloped reserves of 5,083.2 MBbl of oil and 2,136.4 Mcf of natural gas as of September 30, 2021, are scheduled2022 is $68,818,530. The Company expects to be developed after five years primarily due to the relatively high numberfinance these capital costs through a combination of wells the Company plans to drill per year, the significant increase in the amountcurrent 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 undeveloped acreage in 2021 resulting from the acquisition of properties in Martin County, Texas, the Company’s current limited resources, and the current availability of rigs and equipment required for drilling. Possible changes in commodity prices have also been considered by management when developing the Company’s drilling plans.wells.
Drilling Activities
The Company did not drill any wellscurrently estimates that the total cost to develop the Company’s probable undeveloped reserves of 7,334.3 MBbl of oil and 10,307.1 Mcf of natural gas as of September 30, 2022 is $107,884,900. 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, 2021,2022, the Company had 9578 gross wells and 17.2914 net productive wells, with 89 wells producing oil and six wells producing natural gas, and thewells. The Company’s gross developed acreage totaled 5,177 and net developed acreage totaled 3,942 with the following geographicproperty breakdown:
Property | Gross Developed Acreage | Net Developed Acreage | Gross Productive Wells | Net Productive Wells | Gross Developed Acreage | Net Developed Acreage | Gross Productive Wells | Net Productive Wells | ||||||||||||||||||||||||
Pittock | 818 | 664.63 | 1 | 0.81 | ||||||||||||||||||||||||||||
Pittcock | 818 | 664.63 | 1 | 0.81 | ||||||||||||||||||||||||||||
Henshaw | 1,880 | 1,353.60 | 2 | 1.44 | 1,880 | 1,353.60 | 6 | 4.32 | ||||||||||||||||||||||||
Oxy Yates | 680 | 489.60 | 2 | 1.44 | 680 | 489.60 | 5 | 3.60 | ||||||||||||||||||||||||
Bullard | 241 | 187.98 | 1 | 0.78 | 241 | 187.98 | 1 | 0.78 | ||||||||||||||||||||||||
Breedlove | 1,558 | 1,246.4 | 16 | 12.80 | 1,558 | 1,246.40 | 16 | 12.80 | ||||||||||||||||||||||||
Royalty Interest Properties | - | - | 73 | 0.01 | — | — | 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 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 3%5% of these leases have an expiry date that is less than two years from the date of this prospectus.
Sales and Production
The average sales prices of the Company’s oil and gas products sold in the fiscal years ended September 30, 2022, 2021, and 2020 was $89.14/Boe, $54.19/Boe, and 2019 was $46.86, $38.51, and $51.79,$38.51/Boe, respectively.
The Company’s net production quantities by final product sold in the fiscal years ended September 30, 2022, 2021, and 2020, and 2019 was 30,623.6912,597.45 Boe, 20,112.441,182.70 Boe, and 1,112.8717,772.14 Boe, respectively.
The Company’s average production costs per unit for the fiscal years ended September 30, 2022, 2021, and 2020, was $65.82/Boe, and 2019, was $23.56, $27.93,$40.94/Boe, and $32.59,$32.59/Boe, respectively.
The breakdown of production and prices between oil/condensate and natural gas was as follows:
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 10,670 | 948 | 16,240 | |||||||||
Natural Gas (Mcf) | 11,567 | 1,410 | 9,196 |
Average Sales Price | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate ($/Bbl) | 96.18 | 62.37 | 41.09 | |||||||||
Natural Gas ($/Mcf) | 8.36 | 3.54 | 1.44 |
-50- |
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | 947 | 16,240 | 25,513 | |||||||||
Natural Gas (Mcf) | 1,410 | 9,196 | 13,121 |
Average Sales Price | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate ($/Bbl) | 58.36 | 41.09 | 49.67 | |||||||||
Natural Gas ($/Mcf) | 3.40 | 1.44 | 2.04 |
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 | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 6,998 | — | — | |||||||||
Natural Gas (Mcf) | 11,567 | 419 | — |
Henshaw
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 2,189 | — | — | |||||||||
Natural Gas (Mcf) | — | — | — |
Pittcock - Mary Bullard
Net Production Volumes | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||
Oil/Condensate (Bbl) | 1,483 | 847 | 291 | |||||||||
Natural Gas (Mcf) | — | — | — |
ODC San Andres
Net Production Volumes | Fiscal Year Ended September 30, | ||||||||||||
Henshaw
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | - | 0 | 1,519 | |||||||||
Natural Gas (Mcf) | - | 0 | 0 |
McMurtry-Loving
Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | |||||||||||
Oil/Condensate (Bbl) | ||||||||||||
Natural Gas (Mcf) | 2,605 |
ODC San Andres
Net Production Volumes | Fiscal Year Ended September 30, 2021 | Fiscal Year Ended September 30, 2020 | Fiscal Year Ended September 30, 2019 | |||||||||
Oil/Condensate (Bbl) | 14,464 | 11,570 | - | |||||||||
Natural Gas (Mcf) | 4,982 | 2,605 | - |
Texas Properties
Breedlove “B” Clearfork Leases
In September 2021, we, through our 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. We issued 25,000,000 of our common shares104,164 Common Shares and 12,500,00052,082 share purchase warrants as consideration for this acquisition. 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, we began the pilot re-entry on the Carter Clearfork well #5, which is one of 67 shut-in wells that we currently own. The re-entry involved targeting the Clearfork formation at a depth of 7,200 feet. Due to the high water concentrating in the fluid entry, management will be installingplans to install appropriate flow-lines from this well to the injections wells on the property prior to putting the well back on pump. By doing so management is avoiding unnecessaryplans to reduce operating expenses from water disposal in third party disposal facilities.
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We have begun the permitting process for two locations on the Breedlove property for drilling and development. Upon approval of the permits by the regulatory body, we expect to compete in the Spraberry and Wolfcamp formations with possible fracking.
Pittcock Leases
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. We hold 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. We hold 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 to the offset wells being the Pittcock wells located east boundary of the Windy Jones Property. We hold a 100% working interest in the Windy Jones Property and a 78.9% net revenue interest.
Mary Bullard Property
We 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. We hold a 100% working interest in the Mary Bullard Property and a 78.625% net revenue interest.
New Mexico Properties
In December 2017, Permex Petroleum US Corporation, our wholly-owned subsidiary, acquired the West Henshaw Property and the Oxy Yates Property for $170,000 from Permex Petroleum Company LLC (“PPC”).PPC. An additional $95,000 was transferred by us to PPC to purchase reclamation bonds in connection with the future operation of the properties.
West Henshaw Property
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. We hold a 100% working interest in the West Henshaw Property and a 72% net revenue interest.
In January 2022, we began the pilot re-entry on the West Henshaw well #15-3, one out of the 67 shut-in wells we 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. Management believes the production rates from this mature, long-life well to continue with less than 10% decline year over year.
In April 2022, we 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. Management believes the production rates from this mature, long-life well to continue with less than 10% decline year over year.
The remaining 67 shut-in wells that we plan to re-enter have potential to yield similar results increasing oursour total daily production solely by re-entering shut-in wells.
Oxy Yates Property
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. We hold a 100% working interest in the Oxy Yates Property and a 77% net revenue interest.
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Royalty Interest Properties
During the year ended September 30, 2021,we acquired royalty interests in 73 producing oil and gas wells located in Texas and New Mexico for $179,095.
Business Strategy
The principal elements of our business strategy include the following:
● | Grow production and reserves in a capital efficient manner using internally generated levered free cash flow. We intend to allocate capital in a disciplined manner to projects that we anticipate will produce predictable and attractive rates of return. We plan to direct capital to our | |
● | Maximize ultimate hydrocarbon recovery from our assets by optimizing drilling, completion and production techniques and investigating deeper reservoirs and areas beyond our known productive areas. While we intend to utilize proven techniques and technologies, we will also continuously seek efficiencies in our drilling, completion and production techniques in order to optimize ultimate resource recoveries, rates of return and cash flows. We will explore innovative EOR techniques to unlock additional value and have allocated capital towards next generation technologies. For example, we have already completed extensive waterflood EOR studies in Pittcock North and Pittcock South. Through these studies, we will seek to expand our development beyond our known productive areas in order to add probable and possible reserves to our inventory at attractive all-in | |
● | Pursue operational excellence with a sense of urgency. We plan to deliver low cost, consistent, timely and efficient execution of our drilling campaigns, work programs and operations. We intend to execute our operations in a safe and environmentally responsible manner, focus on reducing our emissions, apply advanced technologies, and continuously seek ways to reduce our operating cash costs on a per barrel basis. | |
● | Pursue strategic acquisitions that maintain or reduce our break-even costs. We intend to actively pursue accretive acquisitions, mergers and dispositions that are intended to improve our margins, returns, and break-even costs of our investment portfolio. Financial strategies associated with these efforts will focus on delivering competitive adjusted per share returns. |
Industry Operating Environment
The oil and natural gas industry is a global market impacted by many factors, such as government regulations, particularly in the areas of taxation, energy, climate change and the environment, political and social developments in the Middle East, demand in Asian and European markets, and the extent to which members of The Organization of Petroleum Exporting Countries and other oil exporting nations manage oil supply through export quotas. Natural gas prices are generally determined by North American supply and demand and are also affected by imports and exports of liquefied natural gas. Weather also has a significant impact on demand for natural gas since it is a primary heating source, and a major fuel for electric generation to power air conditioning.
Oil and natural gas prices have been, and we expect may continue to be, volatile. Lower oil and gas prices not only decrease our revenues, but an extended decline in oil or gas prices may affect planned capital expenditures and the oil and natural gas reserves that we can economically produce. While lower commodity prices may reduce our future net cash flow from operations, we expect to have sufficient liquidity to continue development of our oil and gas properties.
Development
We believe that there is significant value to be created by drilling the identified undeveloped opportunities on our properties in conjunction with the stimulation and rework of our shut-in wells. While our near-term plans are focused towards drilling wells on our existing acreage to develop the potential contained therein, our long-term plans also include continuing to evaluate acquisition and leasing opportunities that can earn attractive rates of return on capital employed.
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Competition
The oil and natural gas industry is intensely competitive and we compete with numerous other oil and natural gas exploration and production companies, many of which have substantially larger technical teams and greater financial and operational resources than we do and may be able to pay more for exploratory prospects and productive oil and natural gas properties. Many of these companies not only engage in the acquisition, exploration, development, and production of oil and gas reserves, but also have gathering, processing or refining operations, market refined products, provide, dispose of and transport fresh and produced water, own drilling rigs or production equipment, or generate electricity, all of which, individually or in the aggregate, could provide such companies with a competitive advantage. We also compete with other oil and gas companies in securing drilling rigs and other equipment and services necessary for the drilling, completion, and maintenance of wells, as well as for the gathering, transporting, and processing of oil, gas, natural gas liquids, and water. Consequently, we may face shortages, delays, or increased costs in securing these services from time to time. The oil and gas industry also faces competition from alternative fuel sources, including renewable energy sources such as solar and wind-generated energy, and other fossil fuels such as coal. Competitive conditions may also be affected by future energy, environmental, climate-related, financial, or other policies, legislation, and regulations. Our larger or integrated competitors may be better able to absorb the burden of existing, and any changes to federal, state, and local laws and regulations than we can, which would adversely affect our competitive position. Our ability to discover reserves and acquire additional properties in the future is dependent upon our ability and resources to evaluate and select suitable properties and to consummate transactions in this highly competitive environment.
Marketing and Customers
The market for oil and natural gas that will be produced from our properties depends on many factors, including the extent of domestic production and imports of oil and natural gas, the proximity and availability of capacity and rates and terms of service of pipelines and other transportation and storage facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulation. The oil and natural gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.
Our oil production is being sold to Energy Transfer Partners and HollyFrontier at prices tied to Argus. Our natural gas production is being sold to Targa Midstream PartnersDCP Operating Company LP under Henry Hub gas spot prices.
For the years ended September 30, 20212022 and 2020,2021, we had onethree and one significant purchaser, respectively,purchaser(s) that accounted for approximately 49%83% and 45%90%, respectively, of our total oil, and natural gas revenues. If we lost one or more of these significant purchasers and were unable to sell our production to other purchasers on terms we consider acceptable, it could materially and adversely affect our business, financial condition, results of operations and cash flows.
Title to Properties
Our oil and natural gas properties are subject to customary royalty and other interests, liens under indebtedness, liens incident to operating agreements, liens for current taxes and other burdens, including other mineral encumbrances and restrictions. We do not believe that any of these burdens materially interfere with the use of our properties or the operation of our business. We believe that we have satisfactory title to or rights in our producing properties. As is customary in the oil and gas industry, minimal investigation of title is made at the time of acquisition of undeveloped properties. In most cases, we investigate title only when we acquire producing properties or before commencement of drilling operations.
Seasonality
Winter weather conditions and lease stipulations can limit or temporarily halt the drilling and producing activities of our operating partners and other oil and natural gas operations. These constraints and the resulting shortages or high costs could delay or temporarily halt the operations of our operating partners and materially increase our operating and capital costs. Such seasonal anomalies can also pose challenges for meeting well drilling objectives and may increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay or temporarily halt our operating partners’ operations.
The demand and price for gas frequently increases during winter months and decreases during summer months. To lessen the impact of seasonal gas demand and price fluctuations, pipelines, utilities, local distribution companies, and industrial users regularly utilize gas storage facilities and forward purchase some of their anticipated winter requirements during the summer. However, increased summertime demand for electricity can divert gas that is traditionally placed into storage which, in turn, may increase the typical winter seasonal price. Seasonal anomalies, such as mild winters, or other unexpected impacts, such as the COVID-19 pandemic, sometimes lessen or exacerbate these fluctuations.
Principal Agreements Affecting Our Ordinary Business
We generally do not own physical real estate, but, instead, our acreage is primarily comprised of leasehold interests subject to the terms and provisions of lease agreements that provide us the right to participate in drilling and maintenance of wells in specific geographic areas. Lease arrangements that comprise our acreage positions are generally established using industry-standard terms that have been established and used in the oil and natural gas industry for many years. Many of our leases are or were acquired from other parties that obtained the original leasehold interest prior to our acquisition of the leasehold interest.
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In general, our lease agreements stipulate three-to-five year terms. Bonuses and royalty rates are negotiated on a case-by-case basis consistent with industry standard pricing. Once a well is drilled and production established, the leased acreage in the applicable spacing unit is considered developed acreage and is held by production. Other locations within the drilling unit created for a well may also be drilled at any time with no time limit as long as the lease is held by production. Given the current pace of drilling in the areas of our operations, we do not believe lease expiration issues will materially affect our acreage position.
Governmental Regulation and Environmental Matters
Our operations are subject to various rules, regulations and limitations impacting the oil and natural gas exploration and production industry as whole.
Regulation of Oil and Natural Gas Production
Our oil and natural gas exploration, production and related operations are subject to extensive rules and regulations promulgated by federal, state, tribal and local authorities and agencies. For example, certain states require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas. Texas and New Mexico also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, and several states regulate the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the sourcing and disposal of water used in the process of drilling, completion and abandonment, the establishment of maximum rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells. Moreover, the current U.S. federal Administration has indicated that it expects to impose additional federal regulations limiting access to and production from federal lands. The effect of these regulations is to limit the amount of oil and natural gas that registrant can produce from wells and to limit the number of wells or the locations at which drilling can occur. Moreover, many states impose a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within their jurisdictions, and the current federal Administration has proposed increasing royalties payable for production on Federal land. Failure to comply with any such rules and regulations can result in substantial penalties. The regulatory burden on the oil and natural gas industry may increase our cost of doing business and may affect our profitability. Because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. Significant expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on our financial condition and results of operations. Additionally, currently unforeseen environmental incidents may occur or past non-compliance with environmental laws or regulations may be discovered. Therefore, we are unable to predict the future costs or impact of compliance. Additional proposals and proceedings that affect the oil and natural gas industry are regularly considered by Congress, the states, the Federal Energy Regulatory Commission (“FERC”), PHMSAPipeline and Hazardous Materials Safety Administration (“PHMSA”), and the courts. We cannot predict when or whether any such proposals may become effective.
Regulation of Transportation of Oil
Sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices. Nevertheless, Congress could reenact price controls in the future. Our sales of crude oil are affected by the availability, terms and cost of transportation. The transportation of oil by common carrier pipelines is also subject to rate and access regulation. The FERC regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Interstate oil pipeline rates may be cost-based, although settlement rates agreed to by all shippers are permitted and market-based rates may be permitted in certain circumstances. Effective January 1, 1995, the FERC implemented regulations establishing an indexing system (based on inflation) for transportation rates for oil pipelines that allows a pipeline to increase its rates annually up to a prescribed ceiling, without making a cost of service filing. Every five years, the FERC reviews the appropriateness of the index level in relation to changes in industry costs. On January 20, 2022, the FERC established a new price index for the five-year period which commenced on July 1, 2021. Oil pipelines may also seek market-based rates.
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Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates varies from state to state. Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our operations in any way that is of material difference from those of our competitors in the same state who are similarly situated.
Further, interstate and intrastate common carrier oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all similarly situated shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full capacity, access is generally governed by pro-rationing provisions set forth in the pipelines’ published tariffs. Accordingly, we believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our similarly situated competitors.
Regulation of Transportation and Sales of Natural Gas
Historically, the transportation and sale for resale of natural gas in interstate commerce has been regulated by the FERC under the Natural Gas Act of 1938, (“NGA”), the Natural Gas Policy Act of 1978 (“NGPA”) and regulations issued under those statutes. In the past, the federal government has regulated the prices at which natural gas could be sold. While sales by producers of natural gas can currently be made at market prices, Congress could reenact price controls in the future.
Onshore gathering services, which occur upstream of FERC jurisdictional transmission services, are regulated by the states. Although the FERC has set forth a general test for determining whether facilities perform a non-jurisdictional gathering function or a jurisdictional transmission function, the FERC’s determinations as to the classification of facilities is done on a case-by-case basis. State regulation of natural gas gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements. Although such regulation has not generally been affirmatively applied by state agencies, natural gas gathering may receive greater regulatory scrutiny in the future.
Intrastate natural gas transportation and facilities are also subject to regulation by state regulatory agencies, and certain transportation services provided by intrastate pipelines are also regulated by FERC. The basis for intrastate regulation of natural gas transportation and the degree of state regulatory oversight and scrutiny given to intrastate natural gas pipeline rates and services varies from state to state. Insofar as such regulation within a particular state will generally affect all intrastate natural gas shippers within the state on a comparable basis, we believe that the regulation of similarly situated intrastate natural gas transportation in any state in which we operate and ship natural gas on an intrastate basis will not affect our operations in any way that is of material difference from those of our competitors in that state. Like the regulation of interstate transportation rates, the regulation of intrastate transportation rates affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas.
Environmental Matters
Our operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue. These laws and regulations may:
● | require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities; | |
● | limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and | |
● | impose substantial liabilities for pollution resulting from operations. |
The permits required for our operations may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce their regulations, and violations are subject to fines or injunctions, or both. In the opinion of management, we are in compliance with current applicable environmental laws and regulations, and have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on us, as well as the oil and natural gas industry in general.
The Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”) and comparable state statutes impose strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements. Recent regulation and litigation that has been brought against others in the industry under RCRA concern liability for earthquakes that were allegedly caused by injection of oil field wastes.
The Endangered Species Act (“ESA”) seeks to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations, as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for criminal penalties for willful violations of ESA. Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations are in compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject us (directly or indirectly through our operating partners) to significant expenses to modify our operations or could force discontinuation of certain operations altogether.
The Clean Air Act (“CAA”) controls air emissions from oil and natural gas production and natural gas processing operations, among other sources. CAA regulations include New Source Performance Standards (“NSPS”) for the oil and natural gas source category to address emissions of sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities.
On November 2, 2021, the EPA proposed to revise and add to the NSPS program rules. These rules, if adopted, could have a significant impact on the upstream and midstream oil and gas sectors. The proposed rule would formally reinstate methane emission limitations for existing and modified facilities in the oil and gas sector. Methane is a greenhouse gas. The proposed rules also would regulate, for the first time under the NSPS program, existing oil and gas facilities. Specifically, EPA’s proposed new rule would require states to implement plans that meet or exceed federally established emission reduction guidelines for oil and natural gas facilities. About a year after that proposal, the EPA proposed rules that strengthened and expanded the November, 2021 proposal. The November 2022 EPA statement would require more monitoring of small, high-polluting wells, tracking of “super-emitters”, inspection of abandoned wells until their closure, further reduction in flaring, and use of zero-emissions control equipment on hydrocarbon equipment. Comments regarding the November, 2022 proposal will be presented to the EPA in January, 2023, after which the EPA may act.
On August 16, 2022, the IRA was signed into law. The IRA imposes an escalating charge on methane emissions from inter alia onshore petroleum and natural gas production, and natural gas processing, gathering, transmission, underground storage, and LNG storage/ import/export equipment. The charges apply only to facilities emitting 25,000 metric tons of CO2 annually The IRA also funds grants to facilities subject to the methane charge and “marginal conventional wells” to improve equipment and processes. The IRA also creates generous tax credits, benefitting even non-profit entities, that likely will create more supply and demand for alternative non-hydrocarbon energy which may diminish demand, or prices obtained, for natural gas and oil. These statutory provisions will also be subject to legal challenge. The cumulative effect upon our business’ results of the IRA’s grants, charges, and incentives to non-hydrocarbon energy assets and fuels, is uncertain.
Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as greenhouse gas cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. At the international level, there exists the United Nations-sponsored Paris Agreement, which is a non-binding agreement for nations to limit their greenhouse gas emissions through individually-determined reduction goals every five years after 2020. While the United States withdrew from the Paris Agreement effective November 4, 2020, President Biden recommitted the United States to the Paris Agreement on January 20, 2021.
These regulations and proposals and any other new regulations requiring the installation of more sophisticated pollution control equipment could have a material adverse impact on our business, results of operations and financial condition.
The Federal Water Pollution Control Act of 1972, or the Clean Water Act (the “CWA”), imposes restrictions and controls on the discharge of produced waters and other pollutants into waters of the United States (“WOTUS”). Permits must be obtained to discharge pollutants into state and federal waters and to conduct construction activities in waters and wetlands.
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The CWA and certain state regulations prohibit the discharge of produced water, sand, drilling fluids, drill cuttings, sediment and certain other substances related to the oil and gas industry into certain coastal and offshore waters without an individual or general National Pollutant Discharge Elimination System discharge permit. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. CWA jurisdiction depends on the definition of WOTUS. On December 7, 2021, EPA and the Corps of Engineers proposed a rule to revise the definition of WOTUS, that would potentially expand CWA jurisdiction to include more features in areas where oil and gas operations are conducted. Some states also maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions. In 2021, the United States Supreme Court held that the CWA requires a discharge permit if the addition of pollutants through groundwater is the functional equivalent of a direct discharge from the point source into navigable waters. Costs may be associated with the treatment of wastewater and/or developing and implementing storm water pollution prevention plans.
The CAA, CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of oil and other pollutants and impose liability on parties responsible for those discharges, for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.
New Mexico implemented in 2021 new standards mandating 98% of natural gas emissions be captured, and a prohibition on natural gas flaring to take effect in 2026. In addition, New Mexico in 2022 implemented restrictions, that are more stringent than federal rules, on emissions of volatile organic compounds and oxides of nitrogen, commonly occurring in connection with production of hydrocarbons. The State of New Mexico characterized the new rules as addressing outsized emissions from smaller, leak-prone wells.
The underground injection of oil and natural gas wastes are regulated by the Underground Injection Control program authorized by the Safe Drinking Water Act. The primary objective of injection well operating requirements is to ensure the mechanical integrity of the injection apparatus and to prevent migration of fluids from the injection zone into underground sources of drinking water. Substantially all of the oil and natural gas production in which we have interest is developed from unconventional sources that require hydraulic fracturing as part of the completion process. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulate gas production. Legislation to amend the Safe Drinking Water Act to repeal the exemption for hydraulic fracturing from the definition of “underground injection” and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress. The U.S. Congress continues to consider legislation to amend the Safe Drinking Water Act to address hydraulic fracturing operations.
Scrutiny of hydraulic fracturing activities continues in other ways. The federal government is currently undertaking several studies of hydraulic fracturing’s potential impacts. Several states have also proposed or adopted legislative or regulatory restrictions on hydraulic fracturing. A number of municipalities in other states have enacted bans on hydraulic fracturing. We cannot predict whether any other legislation will ever be enacted and if so, what its provisions would be. If additional levels of regulation and permits were required through the adoption of new laws and regulations at the federal or state level, it could lead to delays, increased operating costs and process prohibitions that would materially adversely affect our revenue and results of operations.
The National Environmental Policy Act (“NEPA”) establishes a national environmental policy and goals for the protection, maintenance and enhancement of the environment and provides a process for implementing these goals within federal agencies. A major federal agency action having the potential to significantly impact the environment requires review under NEPA. In 2021, the Biden Administration proposed a rule to undue changes to NEPA enacted under the Trump Administration that had streamlined NEPA review. The proposed changes would emphasize the need to review federal actions for climate change and environmental justice impacts, among other factors. These proposed changes, if enacted, would affect the assessment of projects ranging from oil and gas leasing to development on public and Indian lands.
Climate Change
Significant studies and research have been devoted to climate change, and climate change has developed into a major political issue in the United States and globally. Certain research suggestsOpponents of hydrocarbon production and consumption contend that greenhouse gas emissions contribute to climate change and pose a threat to the environment. Recent scientific research and political debate has focused in part on carbon dioxide and methane incidental to oil and natural gas exploration and production.
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In the United States, no comprehensive federal climate change legislation has been implemented to date but the current administration has indicated willingness to pursue new climate change legislation, executive actions, rulemakings or other regulatory initiatives to limit greenhouse gas (“GHG”)GHG emissions. Interpretation/implementation of existing statutes and common law is evolving. These include rejoining the Paris Agreement treaty on climate change, several executive orders to address climate change, the U.S. Methane Emissions Reduction Action Plan, and a commitment to cut greenhouse gas emissions 50-52 percent of 2005 levels by 2030. Further, legislative and regulatory initiatives are underway to that purpose. The U.S. Congress has considered legislation that would control GHG emissions through a “cap and trade” program and several states have already implemented programs to reduce GHG emissions. The U.S. Supreme Court determined that GHG emissions fall within the CAA definition of an “air pollutant.” Recent litigation has held that if a source was subject to Prevention of Significant Deterioration (“PSD”) or Title V based on emissions of conventional pollutants like sulfur dioxide, particulates, nitrogen dioxide, carbon monoxide, ozone or lead, then the EPA could also require the source to control GHG emissions and the source would have to install Best Available Control Technology to do so. As a result, a source may still have to control GHG emissions if it is an otherwise regulated source.
The SEC in 2022 proposed rules requiring disclosure of how climate-related risks are likely to materially impact publicly-traded enterprises’ finances, strategies and outlook and the impact of climate-related events upon a company’s consolidated financial statements’ line items. Final action on this proposed rule is pending. Companies must also identify “transition” strategies. Compliance with the proposed rule would increase our costs.
In 2014, Colorado was the first state in the nation to adopt rules to control methane emissions from oil and gas facilities. In 2016, the EPA revised and expanded NSPS to include final rules to curb emissions of methane, a greenhouse gas, from new, reconstructed and modified oil and gas sources. Previously, already existing NSPS regulated VOCs, and controlling VOCs also had the effect of controlling methane, because natural gas leaks emit both compounds. However, by explicitly regulating methane as a separate air pollutant, the 2016 regulations were a statutory predicate to propose regulating emissions from existing oil and gas facilities. In September 2020, EPA made technical and policy changes to the methane rules that limited the scope of the rules. In 2021, President Biden issued Executive Order 13990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis. In furtherance of this Executive Order, the EPA, on November 2, 2021, proposed rules to regulate methane emissions from the oil and natural gas industry, including, for the first time, reductions from certain upstream and midstream existing oil and gas sources. These regulations also expanded controls to reduce methane emissions, such as enhancement of leak detection and repair provisions. The Pipeline and Hazardous Materials Safety Administration (“PHMSA”)PHMSA and the Department of Interior continue to focus on regulatory initiatives to control methane emissions from upstream and midstream equipment. To the extent that these regulations or initiatives remain in place and to the extent that our third-party operating partners are required to further control methane emissions, such controls could impact our business.
In addition, some of our third-party operating partners are required to report their GHG emissions under CAA rules. Because regulation of GHG emissions continues to evolve, further regulatory, legislative and judicial developments are likely to occur. Such developments may affect how these GHG initiatives will impact us. Moreover, while the U.S. Supreme Court held in its 2011 decision American Electric Power Co. v. Connecticut that, with respect to claims concerning GHG emissions, the federal common law of nuisance was displaced by the CAA, the Court left open the question of whether tort claims against sources of GHG emissions alleging property damage may proceed under state common law. There thus remains some litigation risk for such claims. Due to the uncertainties surrounding the regulation of and other risks associated with GHG emissions, we cannot predict the financial impact of related developments on us.
The FERC has issued policy statements articulating how it will quantify natural GHG emissions, departing from past practices.
Legislation or regulations that may be adopted to address climate change could also affect the markets for our products by making our products more or less desirable than competing sources of energy. To the extent that our products are competing with higher GHG emitting energy sources, our products would become more desirable in the market with more stringent limitations on GHG emissions. To the extent that our products are competing with lower GHG emitting energy sources such as solar and wind, our products would become less desirable in the market with more stringent limitations on GHG emissions. We cannot predict with any certainty at this time how these possibilities may affect our operations.
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Depending on the outcome of future carbon emission rulemakings under the Clear Air ActCAA targeting new and existing power plants, and demand for hydrocarbons may be reduced. In addition, we anticipate that such regulations will be challenged in federal court prior to their implementation. Depending on the outcome of such judicial review, the hydrocarbon production industry may face alternative efforts from private parties seeking to establish alternative GHG emission limitations from power plants. Alternative GHG emission limitations may arise from litigation under either federal or state common laws or citizen suit provisions of federal environmental statutes that attempt to force federal agency rulemaking or imposing emission limitations. Such lawsuits may also see damages from harm alleged to have resulted from GHG emissions.
Physical and Operational Risks. Weather extremes such as drought and high temperature variations are common occurrences in the southwest United States. Large increases in ambient temperatures could require evaluation of certain materials used within its system and may represent a greater challenge. As part of conducting our business, we recognize that the southwestern United States is particularly susceptible to the risks posed by climate change, which over time is projected to exacerbate high temperature extremes and prolong drought in the area. Texas has recently experienced extended droughts. Prolonged and extreme drought conditions can also affect our long-term ability to access water resources. Reductions in the availability of water for injections could negatively impact our financial condition, results of operations or cash flows.
Effects of Energy Conservation Measures and Distributed Energy Resources. Some state legislatures and agencies have established rules regarding energy efficiency that mandate energy savings requirements which in turn will impact the demand for electricity.
In addition to these rules and requirements, energy efficiency technologies and distributed energy resources continue to evolve, which may have similar impacts on demand for electricity. Reduced demand due to these energy efficiency requirements, distributed energy requirements and other emerging technologies, could have a material adverse impact on the financial condition results of operations and cash flow of our indirect customers.
Operational Hazards and Insurance
The oil and natural gas business involves a variety of operating risks, including the risk of fire, explosions, well blow-outs, pipe failures, industrial accidents, and, in some cases, abnormally high pressure formations which could lead to environmental hazards such as oil releases, chemical releases, natural gas leaks and the discharge of toxic gases. Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to us, for example, as a result of damage to our property or equipment or injury to our personnel. These operational risks could also result in the spill or release of hazardous materials such as drilling fluids or other chemicals, which may result in pollution, natural resource damages, or other environmental damage and necessitate investigation and remediation costs. As a result, we could be subject to liability under environmental law or common law theories. In addition, these operational risks could result in the suspension or delay of our operations, which could have significant adverse consequences on our business.
In accordance with customary industry practices, we maintain insurance against some, but not all, of the operating risks to which our business is exposed. We cannot provide assurance that any insurance we obtain will be adequate to cover our losses or liabilities. Pollution and environmental risks generally are not fully insurable. Under certain circumstances, we may be liable for environmental damage caused by previous owners or operators of properties or repairs/decommissioning of assets that we own, lease or operate. As a result, we may incur substantial liabilities to third parties or governmental entities for environmental matters for which we do not have insurance coverage, which could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses.
The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial position, results of operations and cash flows.
Employees
As of July 11, 2022,October 20, 2023, we had two full time and no part time employees. We may hire additional personnel as appropriate. We also use the services of independent consultants and contractors to perform various professional services.
Facilities
Our executive offices are located at 100 Crescent Court,2911 Turtle Creek Blvd, Suite 700,925, Dallas, Texas 7520175219 and consists of 2002,765 square feet of leased space. We believe our current office space is sufficient to meet our needs and that additional office space can be obtained if necessary.
Corporate History
We were incorporated on April 24, 2017 under the laws of British Columbia, Canada. At June 30, 2022,2023, we have one wholly-owned subsidiary, Permex Petroleum US Corporation, a corporation incorporated under the laws of New Mexico (Permex U.S.).Mexico. We own and operate oil and gas properties in Texas (Breedlove “B” Property, Pittcock North Property, Pittcock South Property and Mary Bullard Property), and Permex U.S.Petroleum US Corporation owns and operates oil and gas properties in New Mexico (Henshaw Property and the Oxy Yates Property).
Corporate Information
Our principal executive offices are located at 100 Crescent Court,2911 Turtle Creek Blvd, Suite 700,925, Dallas, Texas 7520175219 and our website is www.permexpetroleum.com. We do not incorporate the information on our website into this prospectus and you should not consider any such information that can be accessed through our website as part of this prospectus.
Directors and Executive Officers
Set forth below is the name and position and a brief account of the business experience of each of our directors and executive officers as of July 11, 2022.September 13, 2023. Each of the directors listed below was elected to our Board of Directors to serve until our next annual meeting of shareholders or until his or hersuch director’s successor is elected and qualified.
Name | Age | Position | ||
Mehran Ehsan | Chief Executive Officer, President and Director | |||
Gregory Montgomery | Chief Financial Officer | |||
Barry Whelan |
| Chief Operating Officer and Director | ||
Douglas Charles Urch | Director | |||
James Perry Bryan | Director | |||
John James Lendrum | Director | |||
Melissa Folz | 39 | Director |
Biographical Information
Mehran Ehsan
Mehran Ehsan has served as the Chief Executive Officer and President and a member of the boardBoard of directorsDirectors of the Company since April 2017. In addition, from July 2010 to June 2019, Mr. Ehsan served as President and Chief Executive Officer of N.A. Energy Resources Corporation, a privately held oil and gas operator. Mr. Ehsan also previously served as the Director of Business Development for West Texas Investment Corp. and a Financial Specialist (Oil and Gas) for Sterling Wealth. Mr. Ehsan received his Masters degreea diploma in finance from Heriot-Watt University and his associate’s degree in marketing/financemarketing management, commercial real estate option from the British Columbia Institute of Technology. In addition, Mr. Ehsan took professional courses in banking, corporate finance and securities law at Simon Fraser University.
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We believe Mr. Ehsan is qualified to serve on our Board of Directors because he brings first-hand knowledge of the Company’s day-to-day operations as well as an understanding of the operational, financial and strategic issues facing our Company.
Gregory Montgomery
Gregory Montgomery has served as Chief Financial Officer of the Company since May 2022 and served as a member of the Company’s boardBoard of directors sinceDirectors from March 2020.2020 until April 2023. Since June 2021, Mr. Montgomery has served as Vice President, Project Management Office – Private Equity Energy Management of Priority Power Management, LLC. In addition from October 2018 until June 2021, he served as Partner of Vine Advisors, from October 2017 until October 2018, he served as Chief Financial Officer of Oiltanking North America and from March 2013 until October 2017, he served as Chief Financial Officer of Semarus Energy, LLC. Mr. Montgomery also served as Chief Financial Officer for Lion Copolymer, Coast Energy and Laser Midstream, and was a Director of Strategic Planning for Enbridge Energy Partners (EEP: NYSE) and Compliance Officer for Pennzoil Company (PZL: NYSE). Mr. Montgomery is a CPA and member of the Texas Society of CPA’s and American Institute of Certified Public Accountants. Mr. Montgomery holds a Bachelor of Business Administration from the University of Houston – Bauer College of Business.
We believe Mr. Montgomery is qualified to serve on our Board of Directors because he brings extensive financial and accounting experience in the oil and gas industry.
Barry Whelan
Barry Whelan has served as the Chief Operating Officer and a member of the boardBoard of directorsDirectors of the Company since April 2017. Since May 2017, Mr. Whelan has served as the Chief Operating Officer and a member of the board of directors of N.A. Energy Resources Corporation, a privately held oil and gas operator. Mr. Whelan received his degrees in geology from Western University (London) and McMaster University (Hamilton). He is a past member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta, the Association of Professional Engineers and Geoscientists of British Columbia, the Institute of Geology (London, U.K.) and a Fellow of the Geological Institute of Canada.
We believe Mr. Whelan is qualified to serve on our Board of Directors because he brings first-hand knowledge of the Company’s day-to-day operations.
Scott Kelly
Scott Kelly served as the Chief Financial Officer and Corporate Secretary from December 2017 until May 2022 and has served as a member of the board of directors of the Company since December 2017. Since 2017, Mr. Kelly has been a self-employed business consultant who has held the office of Chief Financial Officer for Ely Gold Royalties Inc. (May 2007 – June 2019), Mako Mining Corp. (TSXV: MKO; OTCQX: MAKOF) (November 2018 – February 2021), Sonoro Gold Corp. (October 2010 – November 2019) (OTCQB: SMOFF; TSX: SGO) and Ethos Gold Corp. (August 2014 – April 2021) (TSX: PPP). Mr. Kelly obtained his Bachelor of Commerce degree from Royal Roads University.
We believe Mr. Kelly is qualified to serve on our Board of Directors because he brings extensive financial and accounting experience.
Douglas Charles Urch
Douglas Urch has served as a member of the Company’s boardBoard of directorsDirectors since November 2018. Since November 2019, Mr. Urch has served as the Executive Vice President and Chief Financial Officer of PetroTal Corp. (OTCQX: PTALF; TSX: TAL)TSXV: TAL; AIM PTAL), and from December 2017 until October 2019, he served as chair of the board of directors. In addition, from February 2008 until September 2018, Mr. Urch served as Executive Vice President, Finance and Chief Financial Officer of Bankers Petroleum Ltd. Moreover, since April 2017, Mr. Urch has served as a member of the board of directors of Blue Moon Metals Corp. (TSXV: MOON). Mr. Urch is a Chartered Professional Accountant (CPA) and a member of the Institute of Corporate Directors (ICD). He also received a Bachelor of Commerce degree (with a major in accounting) from the University of Calgary in 1980.
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We believe Mr. Urch is qualified to serve on our Board of Directors because he brings extensive financial and accounting experience in the oil and gas industry.
James Perry Bryan
James Bryan has served as a member of the Company’s Board of Directors since September 2021. From October 2020 to August 2021, Mr. Lendrum served on the board of directors since September 2021.of Good Work Acquisition Corp., a special purpose acquisition company. Mr. Bryan has been involved in the energy and investment industries for more than five decades, serving as Chief Executive Officer and President of Gulf Canada Resources Limited (1995 - 1998), Chairman (1990 - 1997) and Chief Executive Officer of Nuevo Energy Company (1990 - 1995), Chief Executive Officer of Bellwether Exploration (1987 - 1997), First Vice President of E.F. Hutton & Company and Director of Investment Banking-Southwest Region (1978 - 1981), Chairman and Chief Executive Officer of Torch Energy Advisors, Inc. (1981 - 2012), President and Chief Executive Officer of The Mortgage Banque (1974 - 1978), Executive Vice President and Director of Dominick & Dominick, Inc. (1969 - 1974), and Vice President of Morgan Guaranty Trust Company (1966 - 1969). He received his B.A. from The University of Texas at Austin, his L.L.B. from The University of Texas Law School at Austin and his B.F.T. from the American Institute of Foreign Trade at Phoenix, Arizona. Among his numerous business awards are Texas Entrepreneur of the Year (1994) and Canadian Oil Producer of the Year (1995).
We believe Mr. Bryan is qualified to serve on our Board of Directors because he brings extensive experience in the oil and gas industry.
John James Lendrum
John Lendrum has served as a member of the Company’s boardBoard of directorsDirectors since September 2021. Since 2015, Mr. Lendrum has served as the Non-Executive Chairman of Nuevo Midstream Dos, LLC. From 2012 to 2014, he served as the President, Chief Executive Officer and member of the board of directors of Nuevo Midstream Company (“Nuevo”). Nuevo owned and operated gas gathering, processing and treating assets in the Delaware and Permian Basins of West Texas and New Mexico and was sold to an affiliate of Anadarko Petroleum Company in 2014. Since February 2019, Mr. Lendrum serves on the board of Blue Rock Energy Partners. In 2018, he participated along with several other family offices, in the acquisition of Blue Rock from the private equity unit of TudorPickeringHolt. Mr. Lendrum has a B.B.A. in Finance and completed his graduate studies in Accounting Theory at The University of Texas at Austin.
We believe Mr. Lendrum is qualified to serve on our Board of Directors because he brings extensive experience in the oil and gas industry.
Melissa Folz
Melissa Folz has served as a director of the Company’s Board of Directors since October 2022. Ms. Folz is currently the Director of Production Engineering and Optimization at Chord Energy, which is a result of the merger of Oasis Petroleum and Whiting Petroleum effective July 2022. Ms. Folz has been a leader at Oasis Petroleum since 2014 in various production, reservoir, and subsurface assessment management positions. Prior to joining Oasis she worked at Sabine Oil and Gas as a production engineer and Southwestern Energy as a completions engineer. Ms. Folz has over 15 years of experience in oil and gas, graduated as a petroleum engineer from Louisiana State University, and is a licensed professional engineer in the state of Texas.
We believe Ms. Folz is qualified to serve on our Board of Directors because she brings extensive experience in the oil and gas industry.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Involvement in Certain Legal Proceedings
We are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses), or being subject to any of the items set forth under Item 401(f) of Regulation S-K under the Securities Act.
Arrangements between Officers and Directors
Except as set forth herein, to our knowledge, there is no arrangement or understanding between any of our officers or directors and any other person pursuant to which the officer or director was selected to serve as an officer or director.
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Independence
We have determined Douglas Charles Urch, John James Lendrum, and James Perry Bryan and Melissa Folz to be “independent” directors within the meaning of the listing standards of the New York Stock Exchange.The Nasdaq Capital Market. Mehran Ehsan is not independent since he is the current President and CEO of the Company; Gregory Montgomery is not independent since he is the current CFO of the Company; Scott Kelly is not considered independent as he previously served as our CFO;Company and Barry Whelan is not independent since he is the current COO of the Company. In making our independence determinations, we have considered all relationships between any of the directors and the Company.
Committees of our Board of Directors
Our Board of Directors has a separately designated standing audit committee. Our Board serves in place of a compensation committee, determining the compensation of our officers and directors, and nominating and corporate governance committee, nominating members to our Board of Directors. The functions of a compensation committee and nominating committee are performed exclusively by the independent directors on the Board, meeting separately, and determinations are made by a majority of such independent directors. In lieu of a charter for the compensation committee or Board has adopted resolutions specifying (i) the scope of the compensation committee’s responsibilities, and how it carries out those responsibilities, including structure, processes and membership requirements; (ii) the compensation committee’s responsibility for determining, or recommending to the board for determination, the compensation of directors.the chief executive officer and all other executive officers of the Company; and (iii) that the chief executive officer may not be present during voting or deliberations on his or her compensation. In lieu of a charter for the nominating committee, our Board has adopted resolutions addressing the nominations process and certain other matters related to corporate governance.
Audit Committee
Our audit committee consists of Douglas Charles Urch (Chair), Scott KellyJames Perry Bryan and Gregory Montgomery.John James Lendrum. Our Board of Directors has determined that each of Douglas Charles Urch, meetsJames Perry Bryan and John James Lendrum meet the definition as an “independent” director within the meaning of the listing standards of the New York Stock Exchange.The Nasdaq Capital Market. Each member of the audit committee is financially literate, and in addition, our Board of Directors has determined that Douglas Charles Urch qualifies as an “audit committee financial expert,” as defined in applicable SEC regulations.
Our audit committee is responsible for overseeing our financial reporting process on behalf of the Board, including overseeing the work of the independent auditors who report directly to the audit committee. The specific responsibilities of our audit committee, among others, include:
● | evaluating the performance and assessing the qualifications of the independent directors and recommending to the Board and the shareholders the appointment of our external auditor; | |
● | determining and approving the engagement of and compensation for audit and non-audit services of our external auditor; | |
● | reviewing our financial statements and management’s discussion and analysis of financial condition and results of operations and recommending to the Board whether or not such financial statements and management’s discussion and analysis of financial condition and results of operations should be approved by the Board; | |
● | conferring with our external auditor and with management regarding the scope, adequacy and effectiveness of internal financial reporting controls; | |
● | establishing procedures for the receipt, retention and treatment of complaints received by us regarding our accounting controls, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting and auditing matters; and | |
● | reviewing and discussing with management and the independent auditor, as appropriate, our guidelines and policies with respect to risk assessment and risk management, including major financial risk exposure and investment and hedging policies and the steps taken by management to monitor and control our exposure to such risks. |
Committee Charters and Other Corporate Governance Matters
Audit Committee Charter
Our Board of Directors has adopted a written charter for our audit committee.
Code of Business Conduct and Ethics
We have adopted a written Code of Business Conduct and Ethics which addresses issues including, but not limited to: (i) conflicts of interest; (ii) compliance with laws, rules, and regulations; (iii) protection and proper use of corporate opportunities; (iv) protection and proper use of corporate assets; (v)confidentiality of corporate information; (vi) fair dealing with securityholders, customers, competitors, and employees; and (vii) accuracy of business records. The Code of Business Conduct and Ethics applies to all of our directors, officers and employees. Any change or waivers from the provisions of the Code of Business Conduct and Ethics for our executive officers or directors will be made only after approval by the boardBoard of directorsDirectors and will be promptly disclosed.
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Director Compensation
We have no formal policy concerning director compensation; however, options may be granted to directors as compensation for services on the Board, at the discretion of our Board. To date, the we have not paid any cash compensation to our independent directors. Sixdirectors for service on the Board.
The following table presents the total compensation for each person who served as a member of our directors have been granted a totalBoard of 4,825,000 options.
Directors (other than Mehran Ehsan, our Chief Executive Officer, whose compensation is summarized below under “Summary Compensation Excluding Compensation SecuritiesTable”) and received compensation for such service on the Board during the fiscal year ended September 30, 2022.
Name | Fees earned or paid in cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified deferred compensation earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
Scott Kelly (1) | — | — | 96,154 | — | — | — | 96,154 | |||||||||||||||||||||
Douglas Charles Urch | — | — | 105,770 | — | — | — | 105,770 | |||||||||||||||||||||
James Perry Bryan | — | — | — | — | — | — | — | |||||||||||||||||||||
John James Lendrum | — | — | — | — | — | — | — | |||||||||||||||||||||
Edward Odishaw (2) | — | — | — | — | — | — | — | |||||||||||||||||||||
Gregory Montgomery (3) | — | — | 28,846 | — | — | — | 28,846 | |||||||||||||||||||||
Barry Whelan (4) | — | — | 96,154 | — | — | — | 96,154 |
(1) Scott Kelly served as Chief Financial Officer and Corporate Secretary of the Company until May 2022. In connection with his service as our Chief Financial Officer, Mr. Kelly received cash compensation of $9,360 during the fiscal year ended September 30, 2022. Mr. Kelly resigned from the Board on September 12, 2023.
(2) Edward Odishaw served as a director of the Company until May 2, 2022.
(3) Gregory Montgomery was appointed as our Chief Financial Officer on May 1, 2022. Pursuant to his employment agreement with the Company, Mr. Montgomery will receive an annual base salary of $50,000 and be eligible to receive an annual cash bonus of up to 100% of this annual salary. Mr. Montgomery received cash compensation of $20,833 during the fiscal year ended September 30, 2022 in connection with his service as our Chief Financial Officer. On April 24, 2023, Mr. Montgomery resigned as a director of the Company.
(4) Barry Whelan also serves as our Chief Operating Officer.
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EXECUTIVE COMPENSATION
For the purposes hereof, a named executive officer (“NEO”) of the Company means each of the following individuals:
(a) theCompany’s Chief Executive Officer, of the Company;
(b) the Chief Financial Officer of the Company;
(c) each of the three most highly compensated Executive Officers, or the three most highly compensated individuals acting in a similar capacity,Mehran Ehsan, as no other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000. “Executive Officer” means the chairman, and any vice-chairman, president, secretary or any vice-president and any officer of the Company or a subsidiary who performs a policymaking function in respect of the Company; and
(d) each individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company nor actingreceived total compensation in a similar capacity, at the end2023 in excess of that financial year.$100,000, and thus disclosure is not required for any other person.
Each of Mehran Ehsan, President and CEO of the Company, and Scott Kelly, CFO and Corporate Secretary of the Company, is a NEO of the Company for purposes of this disclosure.Summary Compensation Table
The following table sets forth, for the years ended September 30, 20212023 and 2020,2022, all compensation (other than stock options and other compensation securities) paid payable, awarded, granted, given or otherwise provided, directly or indirectly,accrued by the Company, to or a subsidiaryon behalf of the Company,NEO:
Name and Principal Position | Fiscal Years Ended 09/30 | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||
Mehran Ehsan | 2023 | 250,000 | — | — | — | — | — | — | 250,000 | ||||||||||||||||||||||||||
President, CEO and Director | 2022 | 220,834 | — | — | 144,231 | — | — | — | 365,065 |
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding option and restricted stock unit awards held by our that were outstanding as of September 30, 2023.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) (Exercisable) | Number of Securities Underlying Unexercised Options (#) (Unexercisable) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested (#) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) | |||||||||||||||||||||||||
Mehran Ehsan | 2,813 | (1) | — | — | $ | 90 | 12/4/2027 | — | — | — | — | |||||||||||||||||||||||
President, CEO and Director | 3,125 | (2) | — | — | $ | 43.20 | 10/6/2031 | — | — | — | — |
(1) Stock options granted to each NEO and director,Mehran Ehsan in any capacity.December 2017 vested immediately upon grant.
Table of Compensation, Excluding Compensation Securities(2) Stock options granted to Mehran Ehsan in October 2021 vested immediately upon grant.
Table of Compensation, Excluding Compensation Securities | |||||||||||||||||||||||||||
Name and Principal Position | Year | Salary, Consulting Fee, Retainer or Commission ($) | Bonus ($) | Committee or meeting fees ($) | Value of perquisites ($) (1)(2) | Value of All Other Compensation ($) | Total Compensation ($) | ||||||||||||||||||||
Mehran Ehsan (3) | 2021 | $ | 149,806 | - | - | - | - | $ | 149,806 | ||||||||||||||||||
President, CEO and Director | 2020 | $ | 141,188 | - | - | - | - | $ | 141,188 | ||||||||||||||||||
Scott Kelly (4) | 2021 | - | - | - | - | - | - | ||||||||||||||||||||
Former CFO and Corporate Secretary and Current Director | 2020 | - | - | - | - | - | - | ||||||||||||||||||||
Barry Whelan (5) | 2021 | - | - | - | - | - | - | ||||||||||||||||||||
Chief Operating Officer and Director | 2020 | $ | 3,100 | -l | - | - | - | $ | 3,100 | ||||||||||||||||||
Gregory Montgomery (6) | 2021 | - | - | - | - | - | - | ||||||||||||||||||||
Director | 2020 | - | - | - | - | - | - | ||||||||||||||||||||
Edward A. Odishaw (7) | 2021 | - | - | - | - | - | - | ||||||||||||||||||||
Director | 2020 | - | - | - | - | - | - | ||||||||||||||||||||
Douglas Charles Urch (8) | 2021 | - | - | - | - | - | - | ||||||||||||||||||||
Director | 2020 | - | - | - | - | - | - |
(1) Includes perquisites provided to an NEO or director that are not generally available to all employees. An item is generally a perquisite if it is not integrally and directly related to the performance of the director’s or NEO’s duties. If something is necessary for a person to do his or her job, it is integrally and directly related to the job and is not a perquisite, even if it also provides some amount of personal benefit. For the purposes of the table, perquisites are valued on the basis of the aggregate incremental cost to the Company and its subsidiaries.
(2) NEOs and directors whose total salary for the applicable financial year was $150,000 or less did not receive perquisites that, in aggregate, were greater than $15,000. NEOs and directors whose total salary for the applicable financial year was greater than $150,000 but less than $500,000 did not receive perquisites that, in aggregate, were greater than 10% of the NEO’s or director’s salary for the applicable financial year.
(3) Mr. Ehsan is a director of the Company but does not receive any compensation in such capacity. Mr. Ehsan was appointed as a director of the Company on April 24, 2017.
(4) Mr. Kelly is a director of the Company but does not receive any compensation in such capacity. Mr. Kelly was appointed as a director of the Company on December 4, 2017. Mr. Kelly resigned as Chief Financial Officer of the Company on May 1, 2022.
(5) Mr. Whelan is a director of the Company but does not receive any compensation in such capacity. Mr. Whelan was appointed as a director of the Company on April 24, 2017.
(6) Mr. Montgomery was appointed as a director of the Company on March 15, 2020, and as Chief Financial Officer of the Company on May 1, 2022.
(7) Mr. Odishaw was appointed as a director of the Company on December 4, 2017 and resigned on May 2, 2022.
(8) Mr. Urch was appointed as a director of the Company on November 1, 2018.
External Management Companies
None of the NEOs or directors of the Company have been retained or employed by an external management company which has entered into an understanding, arrangement or agreement with the Company to provide executive management services to the Company, director or indirectly, other than those set out below under “Employment Contracts, Termination Benefits and Change of Control Benefits”.
Stock Options and Other Compensation Securities
The following table discloses all compensation securities granted or issued to each director and NEO by the Company or one of its subsidiaries in the year ended September 30, 2021 for services provided or to be provided, directly or indirectly, to the Company or any of its subsidiaries.
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(1) “Compensation Securities” includes stock options, convertible securities, exchangeable securities and similar instruments including stock appreciation rights, deferred share units and restricted stock units granted or issued by the Company or one of its subsidiaries for services provided or to be provided, directly or indirectly, to the Company or any of its subsidiaries.
(2) As of September 30, 2021, the NEOs and directors held the following number of options (each one option being exercisable to acquire one common share of the Company): Mehran Ehsan – 675,000 options; Scott Kelly – 300,000 options; Barry Whelan – 300,000 options; Edward A. Odishaw – 300,000 options; Douglas Charles Urch – 300,000 options; Gregory Montgomery – 300,000 options.
(3) Mr. Kelly resigned as Chief Financial Officer of the Company on May 1, 2022.
(4) Mr. Montgomery was appointed as Chief Financial Officer of the Company on May 1, 2022.
(5) Mr. Odishaw resigned as director on May 2, 2022.
The following table discloses details regarding each exercise of Compensation Securities by a director or NEO during the year ended September 30, 2021.
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(1) Mr. Kelly resigned as Chief Financial Officer of the Company on May 1, 2022.
(2) Mr. Montgomery was appointed as Chief Financial Officer of the Company on May 1, 2022.
(3) Mr. Odishaw resigned as director on May 2, 2022.
StockStock Option Plans and Other Incentive Plan
Other than the Option Plan set forth below, the Company currently does not have any other stock option plan, stock option agreement made outside of a stock option plan, plan providing for the grant of stock appreciation rights, deferred share units or restricted stock units or any other incentive plan or portion of a plan under which awards are granted.
The Company’s current stock option plan (the “Option Plan”) was approved by the Board on November 27, 2017 and by the Company’s shareholders on April 8, 2022.23, 2023. The purpose of the Option Plan is to ensure that the Company is to able to provide an incentive program for directors, officers, employees and persons providing services to the Company (each, an “Optionee”) that provides enough flexibility in the structuring of incentive benefits to allow the Company to remain competitive in the recruitment and maintenance of key personnel.
The Option Plan iswill be administered by the Board or the compensation committee of the Company, as applicable, which shall, without limitation, have full and final authority in its discretion, but subject to the express provisions of the Option Plan, to interpret the Option Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable for the administration of the Option Plan, subject to any necessary shareholder or regulatory approval. The Board may delegate any or all of its authority with respect to the administration of the Option Plan. The Board shall determine to whom options shall be granted, the terms and provisions of the respective option agreements, the time or times at which such options shall be granted and vested, and the number of common sharesCommon Shares to be subject to each option.
Under the Option Plan, options will be exercisable over periods of up to 10ten years as determined by the Board. The exercise price of any option may not be less than the greater of the closing market price of the common sharesCommon Shares on: (i) the trading day prior to the date of grant of the option; and (ii) the grant date of the option, less any applicable discount allowed by the Canadian Securities Exchange (the “CSE”) or any other stock exchange on which the common sharesCommon Shares are listed for trading.
The maximum number of common sharesCommon Shares which may be issued pursuant to options granted under the Option Plan is 10% of the issued and outstanding common sharesCommon Shares at the time of the grant, provided that the common sharesCommon Shares are listed on the CSE or any other stock exchange at the time of grant. In addition, the number of common sharesCommon Shares which may be issuable under the Option Plan and all of the Company’s other previously established or proposed share compensation arrangements, within a one-year period:
● | to any one Optionee may not exceed (without the requisite disinterested shareholder approval) 5% of the issued | |
● | to insiders as a group shall not exceed 10% of the total number of issued and outstanding | |
● | to all Optionees who undertake investor relation activities shall not exceed 1% in the aggregate of the total number of issued and outstanding |
The Option Plan permits the Board to specify a vesting schedule in its discretion, subject to minimum vesting requirements imposed by the applicable stock exchange. Unless otherwise specified by the Board at the time of granting an option, and subject to the other limits on option grants set out in the Option Plan, all options granted under the Option Plan shall vest and become exercisable in full upon grant, except Options granted to consultants performing investor relations activities, which options must vest in stages over twelve months with no more than one-quarter of the options vesting in any three month period.
The Option Plan provides that if a change of control (as defined in the Option Plan) occurs, or if the Company is subject to a take-over bid, all common sharesCommon Shares subject to options shall immediately become vested and may thereupon be exercised in whole or in part by the option holder. The Board may also accelerate the expiry date of outstanding options in connection with a take-over bid.
The Option Plan contains adjustment provisions with respect to outstanding options in cases of share reorganizations, special distributions and other corporation reorganizations including an arrangement or other transaction under which the business or assets of the Company become, collectively, the business and assets of two or more companies with the same shareholder group upon the distribution to the Company’s shareholders, or the exchange with the Company’s shareholders, of securities of the Company or securities of another company.
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The Option Plan provides that on the death or disability of an option holder, all vested options will expire at the earlier of 365 days after the date of death or disability and the expiry date of such options. Where an Optionee is terminated for cause, any outstanding options (whether vested or unvested) are cancelled as of the date of termination. If an Optionee retires or voluntarily resigns or is otherwise terminated by the Company other than for cause, then all vested options held by such Optionee will expire at the earlier of (i) the expiry date of such options and (ii) the date which is 90 days (30 days if the Optionee was engaged in investor relations activities) after the Optionee ceases its office, employment or engagement with the Company.
The Option Plan contains a provision that if pursuant to the operation of an adjustment provision of the Option Plan, an Optionee receives options (the “New Options”) to purchase securities of another company (the “New Company”) in respect of the Optionee’s options under the Option Plan (the “Subject Options”), the New Options shall expire on the earlier of: (i) the expiry date of the Subject Options; (ii) if the Optionee does not become an eligible person in respect of the New Company, the date that the Subject Options expire pursuant to the applicable provisions of the Option Plan relating to expiration of options in cases of death, disability or termination of employment discussed in the preceding paragraph above (the “Termination Provisions”); (iii) if the Optionee becomes an eligible person in respect of the New Company, the date that the New Options expire pursuant to the terms of the New Company’s stock option plan that correspond to the Termination Provisions; and (iv) the date that is one year after the Optionee ceases to be an eligible person in respect of the New Company or such shorter period as determined by the Board.
In accordance with good corporate governance practices and as recommended by National Policy 51-201 – Disclosure Standards, the Company imposes black-out periods restricting the trading of its securities by directors, officers, employees and consultants during periods surrounding the release of annual and interim financial statements and at other times when deemed necessary by management and the Board. In order to ensure that holders of outstanding options are not prejudiced by the imposition of such black-out periods, the Option Plan contains a provision to the effect that any outstanding options with an expiry date occurring during a management imposed black-out period or within five trading days thereafter will be automatically extended to a date that is 10 trading days following the end of the black-out period.
The options granted under the Option Plan are non-assignable and non-transferable. Subject to required shareholder approval and the approval of the CSE, or any other stock exchange on which the common sharesCommon Shares are listed, if applicable, the Board may from time to time amend or revise the terms of the Option Plan or may terminate the Option Plan at any time.
The Company does not provide any financial assistance to participants in order to facilitate the purchase of common sharesCommon Shares under the Option Plan. As at July 11, 2022,October 20, 2023 there were options outstanding under the Option Plan to acquire 5,575,000 common shares,20,313 Common Shares, representing approximately 8%4% of the Company’s current issued and outstanding shares.
A copy of the Option Plan may be inspected at the head office of the Company, 100 Crescent Court,2911 Turtle Creek Blvd, Suite 700,925, Dallas, Texas 75201,75219, during normal business hours and at the Meeting.hours. In addition, a copy of the Option Plan will be mailed, free of charge, to any shareholder who requests a copy, in writing, from the Chief Financial Officer of the Company. Any such requests should be mailed to the Company, at its head office, to the attention of the Chief Financial Officer.
Employment, Consulting and Management Agreements
Other than the executive employment agreement between the Company and Mehran Ehsan, the material terms of which are set forth below, the Company does not have any compensation agreements or arrangements that the Company or any of its subsidiaries have entered into with respect to services provided by a NEO, a director or any other party in the event such services provided are typically provided by a director or NEO (collectively, “Compensation Arrangements”).
The Compensation Arrangements for Mehran Ehsan were initially set forth in the amended employment agreement dated September 1, 2021, as subsequently amended on May 1, 2022, between the Company and Mr. Ehsan (the “CEO Employment Agreement”). Pursuant to the CEO Employment Agreement, the Company employs Mr. Ehsan to serve as CEO of the Company and to perform such duties and have such authority as may from time to time be assigned by the Board. As compensation for the performance of such duties, the Company paid Mr. Ehsan a base salary of $200,000 per year (which increased to $250,000 as of May 1, 2022), which shall be reviewed by the Company annually. Mr. Ehsan is also eligible for cash bonuses and grants of Options under the Option Plan, in the sole discretion of the Board, as well as group health, medical and disability insurance benefits and any other fringe benefit programs that the Company maintains from time to time for the benefit of its employees.
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The Company may immediately terminate Mr. Ehsan’s employment at any time for cause, by written notice. The Company may terminate the Mr. Ehsan’s employment at any time without cause by providing him with notice in writing and compensation in lieu of notice as follows:
● | payment of all outstanding and accrued base salary and vacation pay, earned and owing up to the last day of the active employment, and reimbursement for all proper expenses incurred by him in connection with the Company’s business prior to the last day of active employment; | |
● | payment of an amount equal to 36 months base salary; | |
● | payment of an amount in lieu of his performance bonus equal to 20% of base salary; and | |
● | continuation of his benefit coverage for a period of six months, or alternatively, if it is unable to continue Mr. Ehsan’s participation in one or more of the Company’s benefit plans, the Company shall pay him an amount equal to the premium cost or contributions the Company would otherwise have made in respect of his participation in the relevant plan(s) for six months. |
Mr. Ehsan is required to give the Company not less than two weeks’ notice in the event of his resignation. Upon receipt of his notice of resignation, or at any time thereafter, the Company has the right to elect to pay, in lieu of such notice period, Mr. Ehsan’s salary for the remainder of the notice period and a reasonable amount in lieu of the his benefits for that period. If the Company elects for payment in lieu of notice, the Mr. Ehsan’s employment shall terminate immediately upon such payment.
If the Company determines that Mr. Ehsan has suffered a Disability (as defined below) that cannot be accommodated, the Company may terminate his employment by notice. In such case, Mr. Ehsan is entitled to receive, in lieu of all amounts otherwise payable under the CEO Employment Agreement (except for amounts earned but not yet paid to Mr. Ehsan through the date of such Disability), compensation at Mr. Ehsan’s base salary rate for a period of six months following the date of Disability or such greater amount as is required by applicable law. In the CEO Employment Agreement, “Disability” means a physical or mental incapacity of Mr. Ehsan that has prevented him from performing the duties customarily assigned to him for 180 days, whether or not consecutive, out of any 12 consecutive months and that in the opinion of the Company, acting on the basis of advice from a duly qualified medical practitioner, is likely to continue to a similar degree.
In the event of death, Mr. Ehsan’s employment shall be deemed to have terminated on the date thereof and the Company shall pay his estate the amounts specified above in respect of termination without cause.
Other than pursuant to the CEO Employment Agreement, the Company has not granted any termination or change of control benefits with respect to any Compensation Arrangement and there are no compensatory plans or arrangements with respect to any NEO or director resulting from the resignation, retirement or any other termination of any NEO or director or from a change of any NEO’s or director’s responsibilities following a change of control. In case of termination of NEOs, other than the CEO, common law and statutory law applies.
The table below sets forth information with respect to each NEO currently employed by the Company in order to assist the reader in determining the potential payment to each such NEO in the event of the termination of such NEO’s employment by the Company other than for cause or in the event of a change of control. The estimated payments have been calculated on the basis of employment agreements as they exist at the date of this prospectus and assuming that they were in effect on September 30, 2021.2022.
Name | Estimated Payment Assuming Termination Without Cause on September 30, 2021 ($) | Estimated Payment Assuming a Change of Control on September 30, 2021 ($) | Estimated Payment Assuming Termination Without Cause on September 30, 2023 ($) | Estimated Payment Assuming a Change of Control on September 30, 2023 ($) | ||||||||||||
Mehran Ehsan | $ | 802,000 | - | $ | 900,000 | — | ||||||||||
Scott Kelly (1) | - | - |
(1) Mr. Kelly resigned as Chief Financial Officer of the Company on May 1, 2022.
The estimated payments assuming a change of control on September 30, 20212023 are based on the assumption that the NEOs are terminated without cause or elect to terminate the agreements.
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Oversight and Description of Director and Name Executive Officer Compensation
Elements of Compensation
Compensation to be awarded or paid to the Company’s directors and/or executive officers, including NEOs consist primarily of management fees, stock options and bonuses. Payments may be made from time to time to executive officers, including NEOs, or companies they control for the provision of consulting or management services. Such services are paid for by the Company at competitive industry rates for work of a similar nature done by reputable arm’s length services providers.
The Board will from time to time determine the stock option grants to be made pursuant to the Option Plan. It is also anticipated that the Board may award bonuses, in its sole discretion, to executive officers (including NEOs) from time to time.
The most significant components of the Company’s executive compensation plan are base salary and an annual incentive bonus. These components are based upon:
● | achievement of specific corporate or segment performance targets; | |
● | a performance evaluation process, taking into consideration comparative levels of compensation with comparable entities in the Company’s industry; | |
● | alignment of the compensation level of each individual to that individual’s level of responsibility; | |
● | the individual’s performance, competencies, skills and achievements; | |
● | alignment with corporate strategy; and | |
● | contributions to corporate or segment performance. |
Base Salary
The base salary review of any NEO will take into consideration the current competitive market conditions, experience, proven or expected performance, and the particular skills of the NEO. Base salary is not expected to be evaluated against a formal “peer group”. The base salaries for NEOs during the fiscal year ended September 30, 20212023 were set at the following:
● | Mehran Ehsan (CEO) –$150,000/year commencing in 2017, subject to adjustment. During the year ended September 30, 2021, Mr. Ehsan received | |
Performance-Based Cash Bonuses
Cash bonuses are not a normal part of the Company’s executive compensation. However, the Company may elect to utilize such incentives where the role-related context and competitive environment suggest that such a compensation modality is appropriate. When and if utilized, the amount of cash bonus compensation will normally be paid on the basis of timely achievement of specific pre-agreed milestones. Each milestone will be selected based upon consideration of its impact on shareholder value creation and the ability of the Company to achieve the milestone during a specific interval. The amount of bonus compensation will be determined based upon achievement of the milestone, its importance to the Company’s near and long term goals at the time such bonus is being considered, the bonus compensation awarded to similarly situated executives in similarly situated companies or any other factors the Company may consider appropriate at the time such performance-based bonuses are decided upon.
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Stock Options
The Company currently has the Option Plan in place for the purposes of attracting and motivating directors, officers, employees, and consultants of the Company and advancing the interests of the Company by affording such persons with the opportunity to acquire an equity interest in the Company through rights granted under the Option Plan. Any grant of options under the Option Plan is within the discretion of the Board, subject to the condition that the maximum number of common sharesCommon Shares which may be reserved for issuance under the Option Plan may not exceed 10% of the Company’s issued and outstanding common shares.Common Shares.
Options are also an important component of aligning the objectives of the Company’s employees with those of shareholders. The Company expects to provide significant option positions to senior employees and lesser amounts to lower-level employees.
Notwithstanding the above, the Company is still in the development stage and has an informal compensation program and strategy. The management team is committed to developing the operations of the Company and will establish a formal compensation program for directors and executive officers once it begins generating revenues sufficient to sustain operations. The Board is responsible for determining, by way of discussions at Board meetings, the ultimate compensation to be paid to the executive officers of the Company. The Company does not have a formal compensation program with set benchmarks; however, the performance of each executive will be considered along with the Company’s ability to pay compensation and its results of operation for the period.
The Company relies solely on its Board to determine the executive compensation that is to be paid to NEOs and directors without any formal objectives, criteria, or analysis.
Pension Disclosure
The Company does not currently provide any pension plan benefits for executive officers, directors, or employees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our capital stock outstanding as of July 11, 2022October 20, 2023 by:
● | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our | |
● | each of our directors; | |
● | each of our named executive officers; and | |
● | all of our directors and named executive officers as a group. |
The percentage ownership information prior to the offering is based on 115,956,026 common shares551,503 Common Shares outstanding as of July 11, 2022.October 20, 2023 and percentage ownership information after the offering is based on 2,451,500 Common Shares outstanding after the offering assuming no sale of any Pre-Funded Units, no exercise of the underwriters option to purchase additional securities and no exercise of the Warrants. The number of shares owned are those beneficially owned, as determined under the rules of the SEC. Under these rules, beneficial ownership includes any common sharesCommon Shares as to which a person has sole or shared voting power or investment power and any common sharesCommon Shares that the person has the right to acquire within 60 days of July 11, 2022October 20, 2023 through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement. These shares are deemed to be outstanding and beneficially owned by the person holding such option, warrants or other derivative securities for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all common sharesCommon Shares shown as beneficially owned by them, subject to applicable community property laws.
Except as otherwise noted below, the address for each person or entity listed in the table is c/o Permex Petroleum Corporation, 100 Crescent Court,2911 Turtle Creek Blvd., Suite 700,925, Dallas, Texas 75201.75219.
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Name and Address of Beneficial Owner | Number of shares beneficially owned | Percentage of shares beneficially owned | ||||||||||||||||||
Number of Shares Beneficially Owned | Percentage of Common Shares Beneficially Owned | |||||||||||||||||||
Name of Beneficial Owner | Prior to Offering | Before Offering | After Offering | |||||||||||||||||
Directors and Named Executive Officers: | ||||||||||||||||||||
Mehran Ehsan | 7,340,308 | (1) | 6.18 | % | 25,030 | (1) | 4.49 | % | 1.02 | % | ||||||||||
Barry Whelan | 1,603,000 | (2) | 1.37 | % | 6,731 | (2) | 1.21 | % | * | |||||||||||
Scott Kelly | 1,700,000 | (3) | 1.46 | % | ||||||||||||||||
Douglas Charles Urch | 1,090,000 | (4) | * | 4,542 | (3) | * | * | |||||||||||||
Gregory Montgomery | 375,000 | (5) | * | |||||||||||||||||
James Perry Bryan | 17,625,000 | (6) | 9.64 | % | 73,437 | (4) | 12.75 | % | 2.97 | % | ||||||||||
John James Lendrum | 19,875,000 | (7) | 16.21 | % | 82,813 | (5) | 14.30 | % | 3.34 | % | ||||||||||
Melissa Folz | — | — | — | |||||||||||||||||
All Officers and Directors as a Group (7 persons) | 50,108,308 | 37.24 | % | 194,428 | 32.46 | % | 8.01 | % | ||||||||||||
5% or Greater Shareholders: | ||||||||||||||||||||
Empery Asset Master, LTD | 12,500,000 | (9) | 10.78 | % | 46,298 | (7) | 8.39 | % | 1.89 | % | ||||||||||
Ramnarain Jaigobind (10) | 6,250,000 | (11) | 5.39 | % | ||||||||||||||||
Ramnarain Jaigobind (8) | 52,083 | (9) | 9.44 | % | 3.33 | %(10) | ||||||||||||||
Petro Americas Resources, LLC (11) | 29,167 | 5.29 | % | 1.19 | % | |||||||||||||||
Pratt Oil and Gas, LLC (12) | 48,958 | 8.88 | % | 2.00 | % |
* less than 1%.
(1) Represents (i) 2,056,974 common shares8,571 Common Shares owned by Mehran Ehsan, (ii) 2,500,000 common shares10,417 Common Shares owned by N.A. Energy Resources Corporation, (iii) 25,000 common shares104 Common Shares owned by Mehran Ehsan’s spouse and (iv) 1,425,000 common shares5,938 Common Shares issuable upon exercise of options owned by Mehran Ehsan, (v) 666,667 common shares issuable upon conversion of an outstanding secured convertible debenture in the principal amount of C$100,000, held by Mehran Ehsan and (vi) 666,667 common shares issuable upon exercise of a warrant to be issued to Mehran Ehsan upon conversion of the outstanding secured convertible debenture held by Mehran Ehsan. Mehran Ehsan is the President and Chief Executive Officer of N.A. Energy Resources Corporation and in such capacity has the right to vote and dispose of the securities held by such entity.
(2) Represents (i) 778,000 common shares3,242 Common Shares owned by Barry Whelan, (ii) 25,000 common shares156 Common Shares owned by Barry Whelan’s spouse and (iii) 800,000 common shares3,333 Common Shares issuable upon exercise of options owned by Barry Whelan.
(3) Represents (i) 700,000 common shares owned by Tuareg Consulting Inc.,1,000 Common Shares and (ii) 200,000 common shares owned by Scott Kelly’s spouse and (iii) 800,000 common shares3,542 Common Shares issuable upon exercise of options owned by Scott Kelly. Scott Kelly is the owner of Tuareg Consulting Inc. and in such capacity has the right to vote and dispose of the securities held by such entity.options.
(4) Represents (i) 240,000 common shares and (ii) 850,000 common shares issuable upon exercise of options.
(5) Represents 375,000 common shares issuable upon exercise of options. Excludes 75,000 common shares issuable upon exercise of options that are not subject to vesting within 60 days of July 11, 2022.
(6) Represents (i) 11,750,000 common shares48,958 Common Shares owned by Pratt Oil and Gas, LLC and (ii) 5,875,000 common shares24,479 Common Shares issuable upon exercise of warrants owned by Pratt Oil and Gas, LLC. James Bryan has the right to vote and dispose of the securities held by Pratt Oil and Gas, LLC.
(7)(5) Represents (i) 7,000,000 common shares29,167 Common Shares owned by Petro Americas Resources, LLC, (ii) 6,250,000 common shares26,042 Common Shares owned by Rockport Permian, LLC, (iii) 3,125,000 common shares13,021 Common Shares issuable upon exercise of warrants owned by Rockport Permian, LLC and (iv) 3,500,000 common shares14,583 Common Shares issuable upon exercise of warrants owned by Petro Americas Resources, LLC. John Lendrum has the right to vote and dispose of the securities held by each of Petro Americas Resources, LLC and Rockport Permian, LLC.
(8)(6) Empery Asset Management LP, the authorized agent of Empery Asset Master Ltd (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The address of Empery Asset Master Ltd is c/o Empery Asset Management, LP, One Rockefeller Plaza, Suite 1205, New York, NY 10020.
(9) Represents 12,500,000 common shares. Excludes 12,500,000 common shares issuable upon exercise of warrants that are not exercisable within 60 days of July 11, 2022.
(10) Represents 6,250,000 common shares. Excludes 6,250,000 common shares issuable upon exercise of warrants that are not exercisable within 60 days of July 11, 2022.
(11) Ramnarain Jaigobind is a principal of ThinkEquity LLC. ThinkEquity LLC acted as the Company’s placement agent for its March 2022 private offering. See “Private Placement of Common Shares and Warrants” above.
PRIVATE PLACEMENT OF COMMON SHARES AND WARRANTS
We entered into subscription agreements certain(7) Represents 46,298 Common Shares. EAM disclaims beneficial ownership of 52,083 Common Shares issuable upon exercise of warrants, which are not included in the selling shareholders identified herein pursuant to which, on March 28 and 29, 2022, we issued an aggregate of 47,128,625 units at a price of $0.16 per unit for gross proceeds of $7,540,580. Each unit is comprised of one common share and one five year common share purchase warrant. Each warrant is exercisable into one common share at an exercise price of $0.21 per share; provided, however, the warrants may not be exercised until July 29, 2022. Furthermore, attable above. At such time that our common shares becomeCommon Shares became registered pursuant to the Exchange Act, under the terms of the warrants, the holder thereof may not exercise the warrants to the extent such exercise would cause such holder, together with its affiliates and attribution parties, to beneficially own a number of common sharesCommon Shares which would exceed 4.99% (or, at the election of the holder, 9.99%) of our then outstanding common sharesCommon Shares following such exercise, excluding for purposes of such determination common shares issuable upon exercise of the warrants which have not been exercised.exercise.
In connection with the foregoing offering, we entered into registration rights agreements with certain(8) Ramnarain Jaigobind is a principal of the selling shareholders identified herein pursuant to which we agreed to file, no later than 45 calendar days after the date of date of each respective registration rights agreement, a registration statement with the SEC covering the resale of the common shares issued in the offering as well as the common shares issuable upon exercise of the warrants issued in the offering. Pursuant to the terms of each such registration rights agreement, we must use our best efforts to cause the registration statement to be declared effective within 60 calendar days following the date on which we file our initial registration statement (the “Trigger Date”) (or, in the event of a “full review” by the SEC, 90 calendar days following the Trigger Date). We are subject to penalties and liquidated damages in the event we not meet certain filing requirements and deadlines set forth in each such registration rights agreement.
Pursuant to the placement agent agreement entered into between us and ThinkEquity LLC on March 28, 2022,LLC. ThinkEquity LLC acted as ourthe Company’s placement agent for its March 2022 private placement offering, as financial advisor for the offering. We paid ThinkEquity LLC a cash fee equal to 10%June 2023 warrant exercise program and is the representative for the several underwriters of the gross proceeds received by us in the offering and reimbursed ThinkEquity LLC $125,000 for its legal expenses. Moreover, we issued ThinkEquity LLC and/or its designees warrants to purchase such number this offering.
(9) Represents 52,083 Common Shares. Mr. Jaigobind disclaims beneficial ownership of common shares equal to 10% of the units sold in the offering, or warrants to purchase up to 4,712,863 common shares, at an exercise price of $0.21 per share.
The closings30,451 Common Shares as the holder of the offering were consummated on March 28 and 29, 2022. The gross proceeds from the offering, prior to deducting offering expenses and placement agent fees and expenses payable by us, were $7,540,580. The offering was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated by the SEC for purchasers located in the United States and Regulation S promulgated under the Securities Act for purchasers located outside of the United States.
The selling shareholders will receive all of the proceeds from the sale of the Resale Shares offered by them pursuant to this prospectus. We will not receive any proceeds from the sale of the Resale Shares by the selling shareholders covered by this prospectus; provided, however, if the warrants are exercised for cash, such proceeds will be used by us as follows: (i) 50% for the drilling and completion of two wells, (ii) 30% of the recompletion, stimulation and enhanced oil recovery and (iii) the balance, or 20%, for working capital.
The common shares being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those common shares and warrants, see “Private Placement of Common Shares and Warrants” above. We are registering the common shares in order to permit the selling shareholders to offer the Resale Shares for resale from time to time. Except for the ownership of the common shares and the warrants, or as otherwise described herein, the selling shareholders have not had any material relationship with us within the past three years.
The table below lists the selling shareholders and other information regarding the beneficial ownership of the common shares by each of the selling shareholders. The second column lists the number of common shares beneficially owned by each selling shareholder, based on its ownership of the common shares and warrants, as of July 11, 2022, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises, including the fact that the warrants are not exercisable until July 29, 2022, which is more than 60 days from the date hereof.
The third column lists the Resale Shares being offered by this prospectus by the selling shareholders.
In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of common shares issued to the selling shareholders in the 2022 private placement, and (ii) the maximum number of common shares issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The third column assumes the sale of all of the Resale Shares offered by the selling shareholders pursuant to this prospectus.
At such time that our common shares become registered pursuant to the Exchange Act, under the terms of the warrants, a selling shareholder may not exercise the warrants to the extent such exercise would cause such selling shareholder,holder, together with its affiliates and attribution parties, to beneficially own a number of common sharesCommon Shares which would exceed 4.99% (or, at the election of the holder, 9.99%) of our then outstanding common sharesCommon Shares following such exercise, excluding for purposes of such determination common sharesexercise.
(10) Represents (i) 52,083 Common Shares and (ii) 30,451 Common Shares issuable upon exercise of the warrants which have not been exercised. The number of shares in the second column does not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
Name of Selling Shareholder | Number of Common Shares Owned Prior to Offering | Maximum Number of Common Shares to be Sold Pursuant to this Prospectus | Number of Common Shares Owned After Offering (1) | ||||||||
AKS Family Partners, LP (2) † | 1,250,000 | (3) | 1,250,000 | (3) | - | ||||||
Ardara Capital, LP (4) | 1,250,000 | (5) | 1,250,000 | (5) | - | ||||||
Brick Lane Holdings LLC (6) | 1,875,000 | (7) | 1,875,000 | (7) | - | ||||||
Chirag Choudhary (71) † | 1,164,667 | (8) | 1,164,667 | (8) | - | ||||||
Evergreen Capital Management LLC (9) | 1,250,000 | (10) | 1,250,000 | (10) | - | ||||||
Kamal Kant | 500,000 | (11) | 500,000 | (11) | - | ||||||
Lind Global Fund II, LP (12) | 6,250,000 | (13) | 6,250,000 | (13) | - | ||||||
ProActive Capital Partners LP (14) | 1,250,000 | (15) | 1,250,000 | (15) | - | ||||||
Ramnarain Jaigobind (71) † | 13,303,590 | (16) | 13,303,590 | (16) | - | ||||||
Rexford Capital LLC (17) | 1,250,000 | (18) | 1,250,000 | (18) | - | ||||||
RL Capital Partners, LP (19) † | 625,000 | (20) | 625,000 | (20) | - | ||||||
Robert M. Niecestro | 312,500 | (21) | 312,500 | (21) | - | ||||||
Barry Shemaria | 120,000 | (22) | 120,000 | (22) | - | ||||||
Tiger Trout Capital Puerto Rico LLC (23) | 2,500,000 | (24) | 2,500,000 | (24) | - | ||||||
Turret Investments LLC (25) | 1,875,000 | (26) | 1,875,000 | (26) | - | ||||||
Warberg WF IX LP (27) | 1,250,000 | (28) | 1,250,000 | (28) | - | ||||||
Warberg WF X LP (29) | 1,250,000 | (30) | 1,250,000 | (30) | - | ||||||
Alpha Capital Anstalt (31) | 6,250,000 | (32) | 6,250,000 | (32) | - | ||||||
Flying S Ranch Trust (33) | 700,000 | (34) | 700,000 | (34) | - | ||||||
Markley Capital Partners, L.P. (35) | 937,500 | (36) | 937,500 | (36) | - | ||||||
Altium Growth Fund, LP (37) | 6,250,000 | (38) | 6,250,000 | (38) | - | ||||||
Alan Gelband † | 1,000,000 | (39) | 1,000,000 | (39) | - | ||||||
The Farkas Group Inc. (40) | 3,125,000 | (41) | 3,125,000 | (41) | - | ||||||
Empery Asset Master Ltd (42) | 25,000,000 | (43) | 25,000,000 | (43) | - | ||||||
LTS Holdings LLC (44) | 3,125,000 | (45) | 3,125,000 | (45) | - | ||||||
The Funicular Fund, LP (46) | 2,500,000 | (47) | 2,500,000 | (47) | - | ||||||
Odin Investments Ltd. (48) | 312,250 | (49) | 312,250 | (49) | - | ||||||
Walleye Opportunities Master Fund Ltd (50) † | 6,250,000 | (51) | 6,250,000 | (51) | - | ||||||
Kevin Mangan (71) † | 98,311 | (52) | 98,311 | (52) | - | ||||||
Nelson Baquet (71) † | 98,310 | (53) | 98,310 | (53) | - | ||||||
Maria Robles (71) † | 7,069 | (54) | 7,069 | (54) | - | ||||||
Craig Skop (71) † | 108,396 | (55) | 108,396 | (55) | - | ||||||
Jeffrey Singer (71) † | 14,139 | (56) | 14,139 | (56) | - | ||||||
Francis Argenziano (71) † | 1,880,432 | (57) | 1,880,432 | (57) | - | ||||||
Ryan Konik (71) † | 98,310 | (58) | 98,310 | (58) | - | ||||||
Philip Quartuccio (71) † | 98,310 | (59) | 98,310 | (59) | - | ||||||
Premchand Beharry (71) † | 136,681 | (60) | 136,681 | (60) | - | ||||||
Bruce & Nancy Inglis JTWROS (71) † | 103,683 | (61) | 103,683 | (61) | - | ||||||
Robert Sagarino (71) † | 75,406 | (62) | 75,406 | (62) | - | ||||||
William Baquet (71) † | 488,922 | (63) | 488,922 | (63) | - | ||||||
Charles Giordano (71) † | 62,681 | (64) | 62,681 | (64) | - | ||||||
Richard Adams (71) † | 31,300 | (65) | 31,300 | (65) | - | ||||||
Phyllis Henderson (71) † | 31,300 | (66) | 31,300 | (66) | - | ||||||
Kolinda Tomasic (71) † | 6,300 | (67) | 6,300 | (67) | - | ||||||
Angela Kang (71) † | 6,300 | (68) | 6,300 | (68) | - | ||||||
Eric Lord (71) † | 300,445 | (69) | 300,445 | (69) | - | ||||||
Priyanka Mahajan (71) † | 98,311 | (70) | 98,311 | (70) | - | ||||||
Armistice Capital Master Fund Ltd. (72) | 2,500,000 | (73) | 2,500,000 | (73) | - | ||||||
TOTAL | 98,970,113 |
† The selling shareholder is an affiliate of a broker-dealer. The selling shareholder has represented to us that (i) it purchased the Resale Shares in the ordinary course of business, and (ii) at the time of the purchase of the Resale Shares, the selling shareholder had no agreements or understandings, directly or indirectly, with any person to distribute the Resale Shares.warrants.
(1) Assumes that all of the Resale Shares held by the selling shareholders covered by this prospectus are sold and that the selling shareholders acquire no additional shares of common shares before the completion of this offering. However, as the selling shareholders can offer all, some, or none of their Resale Shares, no definitive estimate can be given as to the number of Resale Shares that the selling shareholders will ultimately offer or sell under this prospectus.
(2) Adam Stern is the General Partner ofAKS Family Partners, LP and in such capacity(11) John Lendrum has the right to vote and dispose of the securities held by such entity. The address of AKS Family Partners, LP is 9429 Harding Avenue, #225, Surfside, FL 33154.Petro Americas Resources, LLC.
(3) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(4) Patrick Mullin is the Managing Partner of Ardara Capital, LP and in such capacity(12) James Bryan has the right to vote and dispose of the securities held by such entity. The address of Ardara Capital, LP is 246 Brookside Road, Darien, CT 56802.Pratt Oil and Gas, LLC.
(5) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(6) Sandra Monfared is the sole director of Brick Lane Holdings LLC and in such capacity have the right to vote and dispose of the securities held by such entity. The address of Brick Lane Holdings LLC is 315 East 68th Street, 12R, New York, NY 10065.
(7) Represents (i) 937,500 common shares and (ii) 937,500 common shares issuable upon exercise of warrants.
(8) Represents (i) 500,000 common shares and (ii) 664,667 common shares issuable upon exercise of warrants.
(9) Jeffrey Pazdro is the Manager of Evergreen Capital Management LLC and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Evergreen Capital Management LLC is 156 W. Saddle River Road, Saddle River, NJ 07458.
(10) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(11) Represents (i) 250,000 common shares and (ii) 250,000 common shares issuable upon exercise of warrants.
(12) Jeff Easton is the Managing Member of The Lind Partners, LLC, which is the Investment Manager of Lind Global Fund II LP, and in such capacity has the right to vote and dispose of the securities held by such entities. Mr. Easton disclaims beneficial ownership over the securities listed except to the extent of his pecuniary interest therein. The address of The Lind Partners, LLC is 444 Madison Avenue, 41st Floor, New York, NY 10022.
(13) Represents (i) 3,125,000 common shares and (ii) 3,125,000 common shares issuable upon exercise of warrants.
(14) Jeffrey Ramson is the Manager of ProActive Capital Partners LP and in such capacity has the right to vote and dispose of the securities held by such entity. The address of ProActive Capital Partners LP is 150 East 58th Street, 16th Floor, New York, NY 10155.
(15) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(16) Represents (i) 6,250,000 common shares and (ii) 7,053,590 common shares issuable upon exercise of warrants.
(17) Kimberly Langston is the Manager of Rexford Capital LLC and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Rexford Capital LLC is 78 SW 7th Street, Miami, FL 33130.
(18) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(19) Ronald Lazar is the Managing Member of RL Capital Partners, LP and in such capacity has the right to vote and dispose of the securities held by such entity. The address of RL Capital Partners, LP is 810 7th Avenue, 18th Floor, New York, NY 10019.
(20) Represents (i) 312,500 common shares and (ii) 312,500 common shares issuable upon exercise of warrants.
(21) Represents (i) 156,250 common shares and (ii) 156,250 common shares issuable upon exercise of warrants.
(22) Represents (i) 60,000 common shares and (ii) 60,000 common shares issuable upon exercise of warrants.
(23) Alan Masley is the Managing Member of Tiger Trout Capital Puerto Rico LLC and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Tiger Trout Capital Puerto Rico LLC is 1357 Ashford Ave STE 2-267 San Juan, PR 00907.
(24) Represents (i) 1,250,000 common shares and (ii) 1,250,000 common shares issuable upon exercise of warrants.
(25) Michael Babcock is a director of Turret Investments LLC and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Turret Investments LLC is 132 Chief Justice Cushing Hwy, Unit 216, Cohasset, MA 02025.
(26) Represents (i) 937,500 common shares and (ii) 937,500 common shares issuable upon exercise of warrants.
(27) Daniel Warsh is the Manager of Warberg WF IX LP and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Warberg WF IX LP is 716 Oak Street, Winnetka, IL 60093.
(28) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(29) Daniel Warsh is the Manager of Warberg WF X LP and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Warberg WF X LP is 716 Oak Street, Winnetka, IL 60093.
(30) Represents (i) 625,000 common shares and (ii) 625,000 common shares issuable upon exercise of warrants.
(31) Nicola Feuerstein is a director of Alpha Capital Anstalt and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Alpha Capital Anstalt is Alpha Capital Anstalt c/o LH Financial Services, 510 Madison Avenue, Suite 1400, New York, NY 10022.
(32) Represents (i) 3,125,000 common shares and (ii) 3,125,000 common shares issuable upon exercise of warrants.
(33) Ryan W. Shay and Diane C. Shay are Co-Trustees of the Flying S Ranch Trust and in such capacities have the right to vote and dispose of the securities held by such trust.
(34) Represents (i) 350,000 common shares and (ii) 350,000 common shares issuable upon exercise of warrants.
(35) Glen Gordon is the General Partner of Markley Capital Partners, L.P. and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Markley Capital Partners, L.P. is 500 West 2nd Street, Suite 1900, Austin, TX 78701
(36) Represents (i) 468,750 common shares and (ii) 468,750 common shares issuable upon exercise of warrants.
(37) Altium Capital Management, LP, the investment manager of Altium Growth Fund, LP, has voting and investment power over these securities. Jacob Gottlieb is the managing member of Altium Capital Growth GP, LLC, which is the general partner of Altium Growth Fund, LP. Each of Altium Growth Fund, LP and Jacob Gottlieb disclaims beneficial ownership over these securities. The principal address of Altium Capital Management, LP is 152 West 57th Street, 20th Floor, New York, NY 10019.
(38) Represents (i) 3,125,000 common shares and (ii) 3,125,000 common shares issuable upon exercise of warrants.
(39) Represents (i) 500,000 common shares and (ii) 500,000 common shares issuable upon exercise of warrants.
(40) Michael D. Farkas is the President of The Farkas Group Inc. and in such capacity has the right to vote and dispose of the securities held by such entity. The address of The Farkas Group Inc. is 1221 Brickell Avenue, Suite 900, Miami, FL 33131.
(41) Represents (i) 1,562,500 common shares and (ii) 1,562,500 common shares issuable upon exercise of warrants.
(42) Empery Asset Management LP, the authorized agent of Empery Asset Master Ltd (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The address of Empery Asset Master Ltd is c/o Empery Asset Management, LP, One Rockefeller Plaza, Suite 1205, New York, NY 10020.
(43) Represents (i) 12,500,000 common shares and (ii) 12,500,000 common shares issuable upon exercise of warrants.
(44) John Forsythe is the Managing Member of LTS Holdings LLC and in such capacity has the right to vote and dispose of the securities held by such entity. The address of LTS Holdings LLC is 3001 Allaire Road, Wall, NJ 07719.
(45) Represents (i) 1,562,500 common shares and (ii) 1,562,500 common shares issuable upon exercise of warrants.
(46) Jacob Ma-Weaver is the Managing Member of the General Partner of The Funicular Fund, LP and in such capacity has the right to vote and dispose of the securities held by such entity. The address of The Funicular Fund, LP is 2261 Market Street, #4307, San Francisco, CA 94114.
(47) Represents 2,500,000 common shares.
(48) Glenn Jorgensen is the President of Odin Investments Ltd. and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Odin Investments Ltd. is 250 52 Street, Delta, BC V4M 2Y4, Canada.
(49) Represents (i) 156,125 common shares and (ii) 156,125 common shares issuable upon exercise of warrants.
(50) Andrew Carney is the Chief Executive Officer of Walleye Capital LLC, the Investment Manager of Walleye Opportunities Master Fund Ltd, and in such capacity has the right to vote and dispose of the securities held by such entity. The address of Walleye Opportunities Master Fund Ltd is 2800 Niagara Lane North, Plymouth, MN 55447.
(51) Represents (i) 3,125,000 common shares and (ii) 3,125,000 common shares issuable upon exercise of warrants.
(52) Represents 98,311 common shares issuable upon exercise of warrants.
(53) Represents 98,310 common shares issuable upon exercise of warrants.
(54) Represents 7,069 common shares issuable upon exercise of warrants.
(55) Represents 108,396 common shares issuable upon exercise of warrants.
(56) Represents 14,139 common shares issuable upon exercise of warrants.
(57) Represents 1,880,432 common shares issuable upon exercise of warrants.
(58) Represents 98,310 common shares issuable upon exercise of warrants.
(59) Represents 98,310 common shares issuable upon exercise of warrants.
(60) Represents 136,681 common shares issuable upon exercise of warrants.
(61) Represents 103,683 common shares issuable upon exercise of warrants.
(62) Represents 75,406 common shares issuable upon exercise of warrants.
(63) Represents 488,922 common shares issuable upon exercise of warrants.
(64) Represents 62,681 common shares issuable upon exercise of warrants.
(65) Represents 31,300 common shares issuable upon exercise of warrants.
(66) Represents 31,300 common shares issuable upon exercise of warrants.
(67) Represents 6,300 common shares issuable upon exercise of warrants.
(68) Represents 6,300 common shares issuable upon exercise of warrants.
(69) Represents 300,445 common shares issuable upon exercise of warrants.
(70) Represents 98,311 common shares issuable upon exercise of warrants.
(71) The selling shareholder is a principal of ThinkEquity LLC. ThinkEquity LLC acted as our placement agent for our March 2022 private offering. See “Private Placement of Common Shares and Warrants” above.
(72) The securities are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the “Master Fund”), and may be deemed to be indirectly beneficially owned by: (i) Armistice Capital, LLC (“Armistice Capital”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. Armistice Capital and Steven Boyd disclaim beneficial ownership of the securities except to the extent of their respective pecuniary interests therein. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022.
(73) Represents 2,500,000 common shares issuable upon exercise of warrants. Armistice Capital Master Fund Ltd. acquired the warrants from another selling shareholder in a private offering.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following includes a summary of transactions since October 1, 2018during the Company’s last two fiscal years to which we have been a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements which are described elsewhere in this prospectus. We are not otherwise a party to a current related party transaction and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.
Transactions with Related Parties
During the year ended September 30, 2020,In October 2019, the Company issued a total of $150,000 (C$200,000)$76,000 (CAD$100,000) in convertible debenturesdebenture to the CEO and a director of the Company for cash. The debentures aredebenture loan was secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, have a maturity date of September 30, 2021 and February 20, 2022, and bearbore interest at a rate of 12% per annum payable on maturity.and had a maturity date of September 30, 2021. During the year ended September 30, 2021, the Company repaid the principal loan amount of CAD$100,000 together with accrued interest of $13,090. During the year ended September 30, 2021, the Company recorded interest of $4,026.
In February 2020, the Company issued $76,000 (CAD$100,000) in convertible debenture to the CEO of the Company for cash. The debentures aredebenture loan waws secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, accrued interest at a rate of 12% per annum and had an original maturity date of February 20, 2022. The debenture was convertible at the holder’s option into units of the Company at $0.12 (C$0.15)$26.28 (CAD$36.00) per unit. Each unit willwould be comprised of one common share of the Company and one share purchase warrant;warrant, and each warrant entitlesentitled the holder to acquire one additional common share for a period of three years at an exercise price of $0.16 (C$0.20)$35.04 (CAD$48.00). During the year ended September 30, 2021, the Company repaid $79,000 (C$extended the maturity date to December 20, 2022. As of September 30, 2022, $73,000 (CAD$100,000) of thesuch convertible debenture due to a director of the Company together with accrued interest of $9,480 (C$16,570). As at September 30, 2021, $78,500 (C$100,000) of debenture loan remained outstanding and the interest accrued on the loan was $15,176 (C$19,332) (2020 – $15,176 (C$18,805)).
outstanding. During the years ended September 30, 2021, 2020,2022 and 2019 the Company incurred management fees of $149,806 $144,288, and $112,500, respectively, to a company controlled by the CEO of the Company. These payments were made in connection with the terms of the employment agreement between the Company and the CEO described below.
Since September 30, 2021, the Company recorded interest of $9,360 and $9,480, respectively. During the year ended September 30, 2022, the Company repaid $34,709 of the loan (CAD$47,546). During the three months ended December 31, 2022, the Company repaid the remaining principal loan amount of $38,291 (CAD$52,454). During the three months ended December 31, 2022 the Company recorded interest of $1,182.
The Company has incurred an aggregate of $212,000 in management fees to a company controlled byemployment with the CEO of the Company in connection with the terms of the employment agreement between the Company and the CEO described below
The Company’s Board of Directors is required to comply with the conflict of interest provisions of the BCBCA and relevant securities regulation in order to ensure that directors exercise independent judgment in considering transactions and agreements in respect of which a director or officer has a material interest. Any interested director is required to declare the nature and extent of his interest and is not entitled to vote on any matter that is the subject of the conflict of interest.
Agreements with Directors and Officers
The Company entered intofor an employment agreement with Mehran Ehsan, the Company’s CEO, on September 1, 2021 (which amended the Company’s previous employment agreement with Mr. Ehsan dated August 1, 2017), which was subsequently amended on May 1, 2022. Pursuant to this employment agreement, the Company employs Mr. Ehsan to serve as CEO of the Company and to perform such duties and have such authority as may from time to time be assigned by the Company’s Board of Directors. As compensation for the performance of such duties, the Company paid Mr. Ehsan aannual base salary of $200,000 per year (which increased to $250,000, as of May 1, 2022), which shall be reviewed by the Company annually.with no specified term. The terms of this employment agreement as amendedCEO is also provide that Mr. Ehsan is eligible foron an annual basis for a cash bonus of up to 100% of his annual salary. Further, the terms of thisThe employment agreement provide that if Mr. Ehsan’s employmentmay be terminated with the Company is terminated without “cause” (as defined in the agreement) than Mr. Ehsan is entitled to a severancetermination payment equal to three years of base salary and a bonus equal to 20% of histhe annual base salary. For information regardingDuring the years ended September 30, 2022 and September 30, 2021, the Company incurred management fees of $220,834 and $149,806, respectively, to the CEO of the Company. The Company considers this employment agreement see “Management—Employment, Consultinga related party transaction, as it relates to key management personnel and Management Agreements”entities over which it has control or significant influence.
On May 1, 2022, the Company entered into an employment agreement with Gregory Montgomery in connection with Mr. Montgomery’s appointment as the Company’s Chief Financial Officer. This employment agreement provides that Mr. Montgomery will receiveCFO of the Company for an annual base salary of $50,000, and bewith no specified term. The CFO is also eligible to receiveon an annual basis for a cash bonus of up to 100% of this annual salary. Under the terms of thisThe employment agreement if Mr. Montgomery’s employmentmay be terminated with the Company is terminated without “cause” (as defined in the agreement) he would be entitled to a severancetermination payment equal to two months of his base salary. During the years ended September 30, 2022, the Company incurred salaries of $20,835 to the CFO of the Company. 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.
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For information regarding agreements between us and certain of our executive officers and directors, see “Management—Director Compensation,” “Management— Executive Officer Compensation, Excluding Compensation Securities” and “Management—Employment, Consulting and Management Agreements”.
The following description of our share capital summarizes certain provisions of our Articles. The summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of our Articles, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Prospective investors are urged to read the exhibits to the registration statement of which this prospectus forms a part for a complete understanding of our Articles.
Common Units
Each Common Unit being offered in this offering consists of one Common Share and one Warrant, each Warrant exercisable for one Common Share. The Common Shares and Warrants that are part of the Common Units are immediately separable and will be issued separately in this offering, although they will have been purchased together in this offering.
Pre-funded Units
Each Pre-funded Unit being offered in this offering consists of one Pre-funded Warrant and one Warrant, each Pre-funded Warrant and Warrant is exercisable for one Common Share. The Pre-funded Warrants and Warrants that are part of the Pre-funded Units are immediately separable and will be issued separately in this offering, although they will have been purchased together in this offering.
Authorized/Issued Capital
Our authorized share capital consists of an unlimited number of common sharesCommon Shares without par value. As of July 11, 2022, 115,956,026 common sharesOctober 20, 2023, 551,503 Common Shares were issued and outstanding.
Common Shares
Each common shareCommon Share carries the right to attend and vote at all general meetings of shareholders. Holders of the Company’s common sharesCommon Shares are entitled to dividends, if any, as and when declared by the Board and to one vote per common shareCommon Share at meetings of shareholders. In addition, upon liquidation, dissolution or winding-up of the Company, holders of common sharesCommon Shares may share, on a pro rata basis, the remaining assets of the Company as are distributable to holders of common sharesCommon Shares of the Company. The Company may, subject to certain exceptions, purchase, redeem or otherwise acquire any of its shares at the price and upon the terms determined by the Board of Directors. The Company’s common sharesCommon Shares are not subject to call or assessment rights, rights regarding purchase for cancellation or surrender, or any pre-emptive or conversion rights.
Options
Our Option Plan provides for us to issue common sharesCommon Shares or to grant incentive stock options to employees, officers, members of the Board and consultants. As of July 11, 2022,October 20, 2023, there were options to purchase up to 5,575,000 common shares20,313 Common Shares outstanding at a weighted average exercise price of $0.24$54.96 per share.
Warrants
As of July 11, 2022,October 20, 2023, there were warrants to purchase up to 65,825,806 common shares279,746 Common Shares of our stock outstanding at a weighted average exercise price of $0.21$39.90 per share.
Warrants to be Issued in this Offering
The following is a brief summary of certain terms and conditions of the Warrants to be issued in this offering and are subject in all respects to the provisions contained in the Warrants.
Form. The Warrants will be issued in electronic book-entry form to the investors. You should review a copy of the form of warrant, which is filed as an exhibit to the registration statement of which this Prospectus forms a part, for a complete description of the terms and conditions applicable to the Warrants.
Exercisability. The Warrants are exercisable at any time after their original issuance, and at any time up to the date that is five years after their original issuance. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the Common Shares underlying the Warrants under the Securities Act is effective and available for the issuance of such shares, by payment in full in immediately available funds for the number of Common Shares purchased upon such exercise. If a registration statement registering the issuance of the Common Shares underlying the Warrants under the Securities Act is not effective or available, the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Common Shares determined according to the formula set forth in the Warrant. No fractional Common Shares will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
Exercise Limitation. A holder will not have the right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, at the election of the holder prior to issuance, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days’ prior notice from the holder to us.
Exercise Price. The exercise price per whole Common Share purchasable upon exercise of the Warrants is expected to be $ per Common Share. The exercise price is also subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Shares and also upon any distributions of assets, including cash, stock or other property to our shareholders.
Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Common Shares to the holder upon exercise of the Warrants, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Warrants.
Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We have applied for the listing of the Warrants offered in this offering on The Nasdaq Capital Marketunder the symbol “OILSW”. No assurance can be given that such listing will be approved or that a trading market will develop. It is a condition precedent to the underwriter’s obligation to purchase the securities being offered in our offering that Nasdaq approve the listing of our Common Shares and Warrants. Accordingly, if Nasdaq does not approve the listing of our Common Shares and Warrants, we will not and cannot proceed with this offering.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our Common Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Shares, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction.
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Rights as a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our Common Shares, the holder of a Warrant does not have the rights or privileges of a holder of our Common Shares, including any voting rights, until the holder exercises the Warrant.
Pre-funded Warrants
The following summary of certain terms and provisions of the Pre-funded Warrants that are being offered hereby in lieu of a Common Share is not complete and is subject to, and qualified in its entirety by, the provisions of the Pre-funded Warrant, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of Pre-funded Warrant for a complete description of the terms and conditions of the Pre-funded Warrants.
Duration and Exercise Price. Each Pre-funded Warrant offered hereby will have an initial exercise price per share equal to $0.01. The Pre-funded Warrants will be immediately exercisable and may be exercised at any time until the Pre-funded Warrants are exercised in full or they expire. The exercise price and number of Common Shares issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our Common Shares and the exercise price.
Exercisability. The Pre-funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of Common Shares purchased upon such exercise (except in the case of a cashless exercise as discussed below). There is no expiration date for the Pre-funded Warrants. A holder (together with its affiliates) may not exercise any portion of the Pre-funded Warrant to the extent that the holder would own more than 4.99% (or at the election of the holder prior to the issuance of any Pre-funded Warrants, 9.99%) of the outstanding Common Shares immediately after exercise. Any holder may increase such percentage to any percentage not in excess of 9.99% upon at least 61 days’ prior notice to us. No fractional Common Shares will be issued in connection with the exercise of a Pre-funded Warrant. In lieu of fractional Common Shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price of such Pre-funded Warrant or round up to the next whole share.
Cashless Exercise. In lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Pre-funded Warrants.
Fundamental Transaction. In the event of a fundamental transaction, as described in the Pre-funded Warrants and generally including any reorganization, recapitalization or reclassification of our Common Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Shares, the holders of the Pre-funded Warrants will be entitled to receive upon exercise of the Pre-funded Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-funded Warrants immediately prior to such fundamental transaction.
Transferability. Subject to applicable laws, a Pre-funded Warrant may be transferred at the option of the holder upon surrender of the Pre-funded Warrant to us together with the appropriate instruments of transfer.
Exchange Listing. We do not intend to list the Pre-funded Warrants on any securities exchange or nationally recognized trading system.
Rights as a Shareholder. Except as otherwise provided in the Pre-funded Warrants or by virtue of such holder’s ownership of Common Shares, the holders of the Pre-funded Warrants do not have the rights or privileges of holders of our Common Shares, including any voting rights, until they exercise their Pre-funded Warrants.
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Transfer Agent and Registrar
Our transfer agent and registrar is TSX Trust Company whose address is 650 West Georgia Street, Suite 2700, Vancouver, British Columbia, Canada, V6B 4N9. TSX Trust Company maintains our registered list of shareholders.
Listing
Our common shares,Common Shares, no par value, are listed on the Canadian Securities Exchange and the Frankfurt Stock Exchange under the symbols “OIL” and “75P”, respectively, and quoted on the OTCQB tier of the OTC Markets Group, Inc. under the symbol “OILCF.“OILCD.”
We have applied to list our Common Shares and Warrants on The Nasdaq Capital Market under the symbol “OILS” and “OILSW,” respectively; however, no assurance can be given that our Common Shares and Warrants will be approved for listing on The Nasdaq Capital Market.
Shareholder Meetings
We must hold a general meeting of our shareholders at least once in each calendar year and not more than 15 months after the preceding annual general meeting at such time and place as may be determined by the directors. If all shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on that date of the unanimous resolution. The location for a meeting of shareholders shall be determined by the directors and may be within or outside of the Province of British Columbia, Canada.
The Company must send notice of the date, time and location of any meeting of shareholders (including, without limitation, any notice specifying the intention to propose a resolution as an exceptional resolution, a special resolution or a special separate resolution, and any notice to consider approving an amalgamation into a foreign jurisdiction, an arrangement or the adoption of an amalgamation agreement, and any notice of a general meeting, class meeting or series meeting), in the manner provided in the Company’s Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless the Articles of the Company otherwise provide, at least 21 days before the meeting if and for so long as the Company is a public company.
Limitations on Liability and Indemnification of Directors and Officers
Subject to the Business Corporations Act (British Columbia)BCBCA, the Company must indemnify a director, former director or alternate director of the Company against all judgment, penalty or find award or imposed in, or an amount paid in settlement of, an eligible proceeding. An eligible proceeding means: a legal proceeding or investigative action, whether current, threatened, pending or contemplated, in which a director, former director or alternate director of the Company or any of the heirs and legal personal representatives of the eligible party, by reason of the eligible party being or having been a director or alternate director of the Company.
The failure of a director, alternate director or officer of the Company to comply with the Business Corporations Act (British Columbia) BCBCA or the Articles of Incorporation of the Company, or if applicable, any former Companies Act or former Articles, does not invalidate any indemnity to which he or she is entitled pursuant to the Articles of Incorporation of the Company.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Resignation of Independent Registered Public Accounting Firm
On October 31, 2022, Davidson & Company LLP (“Davidson”) resigned as the Company’s independent registered public accounting firm effective October 31, 2022.
Davidson audited the Company’s consolidated financial statements as of and for the fiscal years ended September 30, 2021 and 2020. The report of Davidson on the financial statements of the Company for the fiscal years ended September 30, 2021 and 2020, did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company’s fiscal years ended September 30, 2021 and 2020, and through the interim period ended October 31, 2022, there were no disagreements between the Company and Davidson on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Davidson, would have caused Davidson to make reference to the subject matter of the disagreements in connection with its audit reports on the Company’s financial statements. During the Company’s two most recent fiscal years ended September 30, 2021 and 2020, and the interim period ended October 31, 2022, Davidson did not advise the Company of any reportable events specified in Item 304(a)(1)(v) of Regulation S-K with respect to the Company.
The Company provided Davidson with a copy of the Company’s current report on Form 8-K in accordance with Item 304(a) of Regulation S-K prior to the filing of such report with the Securities and Exchange Commission and requested that Davidson furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. A copy of the letter from Davidson is included as Exhibit 16.1 to the registration statement of which this prospectus forms a part.
Engagement of Independent Registered Public Accounting Firm
On October 31, 2022, through and with the approval of its Audit Committee, the Company appointed Marcum LLP (“Marcum”) as its independent registered public accounting firm. During the Company’s two most recently completed fiscal years and through the date of engagement of Marcum, neither the Company nor anyone on behalf of the Company consulted with Marcum regarding (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements as to which the Company received a written report or oral advice that was an important factor in reaching a decision on any accounting, auditing or financial reporting issue; or (b) any matter that was the subject of a disagreement or a reportable event as defined in Items 304(a)(1)(iv) and (v) of Regulation S-K.
TAX CONSIDERATIONS
U.S.MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the anticipatedmaterial U.S. federal income tax consequences generallyconsiderations applicable to U.S. Holders (as defined below) of the ownership and disposition of our common shares. This summary addresses only holders who acquire pursuant to this offering and hold common shares as “capital assets” (generally, assets held for investment purposes).
The following summary does not purport to address all U.S. federal income tax consequences that may be relevant to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of Common Units or Pre-funded Units acquired pursuant to this offering, the acquisition, ownership, and disposition of Common Shares acquired as part of the Common Units, the acquisition, ownership, and disposition of Pre-funded Warrants acquired as part of the Pre-funded Units, the exercise, disposition, and lapse of Warrants acquired as part of the Common Units or Pre-funded Units, the acquisition, ownership, and disposition of Common Shares received upon exercise of the Pre-funded Warrants, and the acquisition, ownership, and disposition of Common Shares received upon exercise of the Warrants (the “Warrant Shares”).
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition of Common Units or Pre-funded Units pursuant to this offering. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares, norCommon Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants and Warrant Shares. This summary also does it take into accountnot discuss the specific circumstancespotential effects, whether adverse or beneficial, of any particular holder, some of which mayproposed legislation that, if enacted, could be subject to special tax rules (including, but not limited to, brokers, dealers in securitiesapplied on a retroactive or currencies, traders in securities that elect to use a mark-to-market method of accounting for securities holdings, tax-exempt organizations, insurance companies, banks, thrifts and other financial institutions, persons liable for the alternative minimum tax, persons that hold our common shares through an entity, persons that will own, or will have owned, directly, indirectly or constructively 10% or more (by vote or value) of our common shares, persons that hold our common shares as part of a hedging, integration, conversion or constructive sale transaction or a straddle, former citizens or permanent residents of the U.S., or persons whose functional currency is not the U.S. dollar).
This summary is based on the U.S. Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, administrative pronouncements and rulings of the U.S. Internal Revenue Service (“IRS”) and judicial decisions and the Canada-United States Income Tax Convention (1980), as amended, all as in effect on the date hereof, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. Exceptprospective basis. In addition, except as specifically set forth below, this summary does not discuss applicable income tax reporting requirements. This summary does not describe any state, local or foreignEach U.S. Holder should consult its own tax law considerations, or any aspect ofadvisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax law other than income taxation (e.g., estate or gift tax orconsequences relating to the Medicare contribution tax). U.S. Holders (as defined below) should consult their own tax advisers regarding such matters.acquisition, ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, and Warrant Shares.
No legal opinion from U.S. legal counsel or ruling from the IRSInternal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the ownership or disposition of our common shares.considerations applicable to U.S. Holders as discussed in this summary. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to differentvarious interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
As usedScope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed) promulgated under the Code, published rulings of the IRS, published administrative positions of the IRS and U.S. court decisions, that are in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
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U.S. federal income tax consequences, aHolder
For purposes of this summary, the term “U.S. Holder” ismeans a beneficial owner of our common shares who,Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares acquired pursuant to this offering that is for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the U.S., (ii) a corporation (or other entity that is classifiedpurposes:
● | a citizen or individual resident of the Common United States; | |
● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the Common United States, any state thereof or the District of Columbia; | |
● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or | |
● | a trust that (1) is subject to the primary supervision of a court within the Common United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Transactions Not Addressed
This summary does not address the tax consequences of transactions effected prior or subsequent to, or concurrently with, any purchase of Common Units or Pre-funded Units pursuant to this Prospectus (whether or not any such transactions are undertaken in connection with the purchase of Common Units or Pre-funded Units pursuant to this Prospectus).
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax purposes)considerations applicable to U.S. Holders that is created or organized in orare subject to special provisions under the lawsCode, including U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are brokers or dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares other than as a capital asset within the meaning of Section 1221 of the U.S., any state thereof or the District of Columbia, (iii) an estate whose income isCode (generally, property held for investment purposes); (h) are partnerships and other pass-through entities (and investors in such partnerships and entities); (i) are S corporations (and shareholders thereof); (j) are subject to special tax accounting rules; (k) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of our outstanding shares; (l) are U.S. expatriates or former long-term residents of the U.S.; (m) are subject to taxing jurisdictions other than, or in addition to, the Common United States; or (n) are subject to the alternative minimum tax. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, income tax regardless of its source, or (iv) a trust if (A) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (B) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax purposes.consequences relating to the acquisition, ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares.
The tax treatment of a partner in a partnership (or otherIf an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes) thatpurposes holds our common shares may depend on bothCommon Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares, the partnership’sU.S. federal income tax consequences to such entity or arrangement and the partner’s status andowners of such entity or arrangement generally will depend on the activities of such entity or arrangement and the partnership. Partnerships (or otherstatus of such owners. This summary does not address the tax consequences to any such entity or arrangement or owner. Owners of entities or arrangements that are classified as a partnershippartnerships for U.S. federal income tax purposes) that are beneficial owners of our common shares, and their partners and other owners,purposes should consult their own tax advisersadvisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants and Warrant Shares.
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U.S. Federal Income Tax Consequences of the Acquisition of Common Units or Pre-funded Units
For U.S. federal income tax purposes, the acquisition by a U.S. Holder of a Common Unit will be treated as the acquisition of one Common Share and one Warrant. The purchase price for each Common Unit will be allocated between these two components in proportion to their relative fair market values at the time the Common Unit is purchased by the U.S. Holder. This allocation of the purchase price for each Common Unit will establish a U.S. Holder’s initial tax basis for U.S. federal income tax purposes in the Common Share and one Warrant that comprise each Common Unit.
For this purpose, we will allocate $ of the purchase price for the Common Unit to the Common Share and $ of the purchase price for each Common Unit to the Warrant. However, the IRS will not be bound by such allocation of the purchase price for the Common Units, and therefore, the IRS or a U.S. court may not respect the allocation set forth above. Each U.S. Holder should consult its own tax advisor regarding the allocation of the purchase price for the Common Units.
For U.S. federal income tax purposes, the acquisition by a U.S. Holder of a Pre-funded Unit will be treated as the acquisition of one Pre-funded Warrant and one Warrant. The purchase price for each Pre-funded Unit will be allocated between these two components in proportion to their relative fair market values at the time the Pre-funded Unit is purchased by the U.S. Holder. This allocation of the purchase price for each Pre-funded Unit will establish a U.S. Holder’s initial tax basis for U.S. federal income tax purposes in the Pre-funded Warrant and one Warrant that comprise each Pre-funded Unit.
For this purpose, we will allocate $ of the purchase price for the Pre-funded Unit to the Pre-funded Warrant and $ of the purchase price for each Pre-funded Unit to the Warrant. However, the IRS will not be bound by such allocation of the purchase price for the Pre-funded Units, and therefore, the IRS or a U.S. court may not respect the allocation set forth above. Each U.S. Holder should consult its own tax advisor regarding the allocation of the purchase price for the Pre-funded Units.
Treatment of Pre-funded Warrants
Although it is not entirely free from doubt, we believe that a Pre-funded Warrant should be treated as a separate class of our Common Shares for U.S. federal income tax purposes and a U.S. Holder of Pre-funded Warrants should generally be taxed in the same manner as a holder of Common Shares except as described below. Accordingly, no gain or loss should be recognized upon the exercise of a Pre-funded Warrant and, upon exercise, the holding period of a Pre-funded Warrant should carry over to the Common Shares received. Similarly, the tax basis of the Pre-funded Warrant should carry over to the Common Shares received upon exercise, increased by the exercise price of $0.01 per share. However, such characterization is not binding on the IRS, and the IRS may treat the Pre-funded Warrants as warrants to acquire Common Shares. If so, the amount and character of a U.S. Holder’s gain with respect to an investment in Pre-funded Warrants could change, and a U.S. Holder may not be entitled to make the “QEF Election” or “Mark-to-Market Election” described below with respect to the Pre-funded Warrants to mitigate PFIC consequences in the event that the Company is classified as a PFIC. Accordingly, each U.S. Holder should consult its own tax advisor regarding the risks associated with the acquisition of a Pre-funded Warrant pursuant to this offering (including potential alternative characterizations). The balance of this discussion generally assumes that the characterization described above is respected for U.S. federal income tax purposes.
Passive Foreign Investment Company Rules
If the Company were to constitute a “passive foreign investment company” within the meaning of Section 1297 of the Code (a “PFIC”) for any year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, and Warrant Shares. Based on current business plans and financial expectations, the Company expects that it should not be a PFIC for its current tax year and expects that it should not be a PFIC for the foreseeable future. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been, is not, and will not become a PFIC for any tax year during which U.S. Holders hold Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares.
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In addition, U.S. Holders of PFICs are required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require, which filing obligation would generally commence in the first tax year in which the Company is classified as a PFIC and in which such U.S. Holder holds Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.
In general, the Company will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. In addition, for purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation.
Under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of the Company which is also a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a disposition of shares of a Subsidiary PFIC, both as if the holder directly held the shares of such Subsidiary PFIC.
If the Company were a PFIC in any tax year and a U.S. Holder held Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares, such holder generally would be subject to special rules under Section 1291 of the Code with respect to “excess distributions” made by the Company on the Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares and with respect to gain from the disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares. An “excess distribution” generally is defined as the excess of distributions with respect to the Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares received by a U.S. Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares, as applicable. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares ratably over its holding period for the Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares, as applicable. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.
While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including, without limitation, the “QEF Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner. Under proposed Treasury Regulations, if a U.S. Holder has an option, warrant, or other right to acquire stock of a PFIC (such as the Warrants), such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the Code that apply to “excess distributions” and dispositions described above. However, under the proposed Treasury Regulations, for the purposes of the PFIC rules, the holding period for any Warrant Shares acquired upon the exercise of a Warrant will begin on the date a U.S. Holder acquires the Common Units or Pre-funded Units (and not the date the Warrants are exercised). This will impact the availability, and consequences, of the QEF Election and Mark-to-Market Election with respect to the Warrant Shares. Thus, a U.S. Holder will have to account for Warrant Shares, Pre-Funded Warrants and Common Shares under the PFIC rules and the applicable elections differently. In addition, a QEF Election may not be made with respect to the Warrants and it is unclear whether the Mark-to-Market Election may be made with respect to the Warrants.
U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company does not intend to provide U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any Subsidiary PFIC.
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Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult with their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of our common shares.Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares, and the availability of certain U.S. tax elections under the PFIC rules.
U.S. Federal Income Tax Consequences of the Exercise and Disposition of Warrants
The following discussion describes the general rules applicable to the ownership and disposition of the Warrants but is subject in its entirety to the special rules described above under the heading Passive Foreign Investment Company Rules.
Exercise of Warrants
A U.S. Holder should not recognize gain or loss on the exercise of a Warrant and related receipt of a Warrant Share (unless cash is received in lieu of the issuance of a fractional Warrant Share). A U.S. Holder’s initial tax basis in the Warrant Share received on the exercise of a Warrant should be equal to the sum of (a) such U.S. Holder’s tax basis in such Warrant plus (b) the exercise price paid by such U.S. Holder on the exercise of such Warrant. It is unclear whether a U.S. Holder’s holding period for general informationthe Warrant Share received on the exercise of a Warrant would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant. If we are a PFIC, a U.S. Holder’s holding period for the Warrant Share for PFIC purposes only, does not discuss all aspectswill begin on the date on which such U.S. Holder acquired its Common Units.
In certain limited circumstances, a U.S. Holder may be permitted to undertake a cashless exercise of Warrants into Warrant Shares. The U.S. federal income taxationtax treatment of a cashless exercise of Warrants into Warrant Shares is unclear, and the tax consequences of a cashless exercise could differ from the consequences upon the exercise of a Warrant described in the preceding paragraph. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of Warrants.
Disposition of Warrants
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of a Warrant in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Warrant sold or otherwise disposed of. Subject to the PFIC rules discussed above, any such gain or loss generally will be a capital gain or loss, which will be long-term capital gain or loss if the Warrant is held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.
Expiration of Warrants Without Exercise
Upon the lapse or expiration of a Warrant, a U.S. Holder will recognize a loss in an amount equal to such U.S. Holder’s tax basis in the Warrant. Any such loss generally will be a capital loss and will be long-term capital loss if the Warrants are held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment to the number of Warrant Shares that will be issued on the exercise of the Warrants, or an adjustment to the exercise price of the Warrants, may be relevanttreated as a constructive distribution to a particularU.S. Holder of the Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder’s proportionate interest in the “earnings and profits” or our assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to the shareholders). Adjustments to the exercise price of Warrants made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of the Warrants should generally not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property. (See more detailed discussion of the rules applicable to distributions made by us at Distributions on Common Shares, Pre-funded Warrants and Warrant Shares below).
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General Rules Applicable to U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares. Pre-funded Warrants and Warrant Shares
The following discussion describes the general rules applicable to the ownership and disposition of the Common Shares, Pre-funded Warrants and Warrant Shares, but is subject in its entirety to the special rules described above under the heading Passive Foreign Investment Company Rules.
Distributions on Common Shares, Pre-funded Warrants and Warrant Shares
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share, Pre-funded Warrant or Warrant Share (as well as any constructive distribution on a Warrant as described above) will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current and accumulated “earnings and profits”, as computed under U.S. federal income tax principles. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if we are a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds our current and accumulated “earnings and profits”, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares, Pre-funded Warrants or Warrant Shares and thereafter as gain from the sale or exchange of such Common Shares, Pre-funded Warrants or Warrant Shares (see “Sale or Other Taxable Disposition of Common Shares, Pre-funded Warrants and/or Warrant Shares” below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may be required to assume that any distribution by us with respect to the Common Shares, Pre-funded Warrants or Warrant Shares will constitute ordinary dividend income. Dividends received on Common Shares, Pre-funded Warrants or Warrant Shares generally will not be eligible for the “dividends received deduction” generally applicable to corporations. Subject to applicable limitations and provided we are eligible for the benefits of the Tax Treaty or the Common Shares are readily tradable on a Common United States securities market, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that we not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares, Pre-funded Warrants and/or Warrant Shares
Upon the sale or other taxable disposition of Common Shares, Pre-funded Warrants or Warrant Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such Common Shares, Pre-funded Warrants or Warrant Shares sold or otherwise disposed of. Gain or loss recognized on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the Common Shares, Pre-funded Warrants or Warrant Shares have been held for more than one year. Preferential tax rates may apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
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Additional Tax Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in lightforeign currency or on the sale, exchange or other taxable disposition of Common Shares, Pre-funded Warrants, Warrants or Warrant Shares generally will be equal to the U.S. dollar value of such holder’s circumstancesforeign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax situation,consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares, Pre-funded Warrants or Warrant Shares (or with respect to any constructive dividend on the Warrants) generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid or accrued (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.
Information Reporting; Backup Withholding Tax
Under U.S. federal income tax laws certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person. U. S. Holders may be subject to these reporting requirements unless their Common Shares, Pre-funded Warrants, Warrants, and Warrant Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file IRS Form 8938.
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of the Common Shares, Pre-funded Warrants, Warrants and Warrant Shares generally may be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish its correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that it has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons, such as U.S. Holders that are corporations, generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON UNITS, PRE-FUNDED UNITS, COMMON SHARES, PRE-FUNDED WARRANTS, WARRANTS, AND WARRANT SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
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MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of Common Units and Pre-Funded Units acquired pursuant to this offering by a holder who, at all relevant times, (a) for the purposes of the Income Tax Act (Canada) (the “Tax Act”), (i) is not resident, or deemed to be resident, in Canada, (ii) deals at arm’s length with, and is not affiliated with, the Company, (iii) beneficially owns Common Shares, Warrants and Pre-Funded Warrants, (collectively, the “Securities”), as the case may be, as capital property, (iv) does not use or hold the Securities in the course of carrying on, or otherwise in connection with, a business or a part of a business carried on or deemed to be carried on in Canada, and (v) is not a “registered non-resident insurer” or “authorized foreign bank” within the meaning of the Tax Act, or other holder of special status, and (b) for the purposes of the Canada-United States Income Tax Convention (1980), as amended (the “Convention”), is a resident of the U.S., has never been a resident of Canada, does not have and has not had, at any time, a permanent establishment or fixed base in Canada, and is a qualifying person or otherwise qualifies for the full benefits of the Convention. Securities will generally be considered to be capital property to a holder unless such Securities are held in the course of carrying on a business of buying or selling securities or an adventure or concern in the nature of trade. Holders who meet all the criteria in clauses (a) and (b) are referred to herein as a “U.S. Holder” or “U.S. Holders.”
This summary does not deal with special situations, such as the particular circumstances of traders or dealers or holders who have entered or will enter into a “derivative forward agreement” (as defined in the Tax Act) in respect of any of the Securities. Such holders and other holders who do not meet the criteria in clauses (a) and (b) should consult their own tax advisors.
This summary is based upon the current provisions of the Tax Act and the regulations thereunder (the “Regulations”) and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) made publicly available prior to the date hereof. It also takes into account all proposed amendments to the Tax Act and the Regulations publicly released by the Minister of Finance (Canada) (the “Tax Proposals”) prior to the date hereof, and assumes that all such Tax Proposals will be enacted as currently proposed. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all. This summary does not otherwise take into account or anticipate any changes in law, whether by way of legislative, judicial or administrative action or interpretation, nor does it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder. No opinion orHolder and no representation with respect to the U.S. federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. Each U.S. Holder is urged to consult its own tax advisor regarding the particularThe tax consequences to it pursuant to this offering, including the application of U.S. federal, state and local tax Laws, as well as any applicable non-U.S. tax Laws, to a U.S. Holder’sHolder will depend on the holder’s particular situation, and of any change in applicablecircumstances. Accordingly, U.S. Holders should consult with their own tax Laws.advisors for advice with respect to their own particular circumstances.
General Rules Applicable to our Common SharesCurrency Conversion
Distributions on Common Shares
In general, subjectfor purposes of the Tax Act, all amounts relating to the “passive foreign investment company” (or “PFIC”) rules discussed below,acquisition, holding or disposition of the gross amountSecurities must be converted into Canadian dollars based on the applicable exchange rate quoted by the Bank of any distribution receivedCanada for the relevant day or such other rate of exchange that is acceptable to the CRA.
Allocation of Cost
A U.S. Holder who acquires Common Units or Pre-Funded Units, as the case may be, will be required to allocate the purchase price paid for each Common Unit or Pre-Funded Unit on a reasonable basis between the Common Share and the Warrant comprising each Common Unit, or between the Pre-Funded Warrant and the Warrant comprising each Pre-Funded Unit, as applicable, in order to determine their respective costs to such U.S. Holder for the purposes of the Tax Act.
Exercise or Expiry of Warrants
No gain or loss will be realized by a U.S. Holder within respect to our common shares (including amounts withheld to pay Canadian withholding taxes)of a Warrant or Pre-Funded Warrant upon the exercise of such Warrant or Pre-Funded Warrant for Common Shares. When a Warrant or Pre-Funded Warrant is exercised, the U.S. Holder’s cost of the Common Share acquired thereby will be included inequal to the gross incomeadjusted cost base of the Warrant or Pre-Funded Warrant to such U.S. Holder, plus the amount paid by such U.S. Holder on the exercise of the Warrant or Pre-Funded Warrant. For the purpose of computing the adjusted cost base to a U.S. Holder of the Common Shares acquired on the exercise of a Warrant or Pre-Funded Warrant, the cost of such Common Shares must be averaged with the adjusted cost base to such U.S. Holder of all other Common Shares (if any) held by the U.S. Holder as a dividendcapital property immediately prior to the extent attributable to our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. We may not calculate our earnings and profits each year under U.S. federal income tax rules. Accordingly, U.S. Holders should expect that a distribution generally will be treated as a dividend for U.S. federal income tax purposes. Subject to the PFIC rules discussed below, distributions on our common shares to certain non-corporate U.S. Holders that are treated as dividends may be taxed at preferential rates provided we are not treated as a PFIC for the taxable yearexercise of the distribution or the preceding taxable year, and certain other (including holding period) requirements are satisfied. Such dividends will not be eligible for the “dividends received” deduction ordinarily allowed to corporate shareholders with respect to dividends received from U.S. corporations.such Warrant.
The amountGenerally, the expiry of any dividend paid in Canadian dollars (including amounts withheldan unexercised Warrant or Pre-Funded Warrant will give rise to pay Canadian withholding taxes) will equal the U.S. dollar value of the Canadian dollars calculated by reference to the exchange rate in effect on the date the dividend is actually or constructively received by the U.S. Holder, regardless of whether the Canadian dollars are converted into U.S. dollars. A U.S. Holder will have a tax basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. If the Canadian dollars received are converted into U.S. dollars on the date of receipt, the U.S. Holder should generally not be required to recognize foreign currency gain orcapital loss in respect of the distribution. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder may recognize foreign currency gain or loss on a subsequent conversion or other disposition of the Canadian dollars. Such gain or loss will be treated as ordinary income or loss and, in the case of a foreign currency loss of a non-corporate U.S. Holder, may be a non-deductible investment expense.
Distributions on our common shares that are treated as dividends generally will constitute income from sources outside the United States. A U.S. Holder may be eligible to elect to claim a U.S. foreign tax credit against its U.S. federal income tax liability, subject to applicable limitations and holding period requirements, for Canadian tax withheld, if any, from distributions received in respect of its common shares. A U.S. Holder that does not elect to claim a U.S. foreign tax credit may instead claim a deduction for Canadian tax withheld, but only for a taxable year in which the U.S. Holder elects to do so with respect to all foreign income taxes paid or accrued in such taxable year. The rules relating to U.S. foreign tax credits are complex, and each U.S. Holder should consult its own tax adviser regarding the application of such rules.
Sale, Exchange or Other Taxable Disposition of Common Shares
A U.S. Holder generally will recognize gain or loss on the sale, exchange or other taxable disposition of our common shares in an amount equal to the difference, if any, between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holder’s adjusted tax basis in our common shares exchanged therefor. Subject to the PFIC rules discussed below, such gain or loss will be capital gain or loss and will be long-term capital gain (currently taxable at a reduced rate for non-corporate U.S. Holders) or loss if, on the date of the sale, exchange or other taxable disposition, our common shares have been held by such U.S. Holder for more than one year. The deductibility of capital losses is subject to limitations. Such gain or loss generally will be sourced within the U.S. for U.S. foreign tax credit purposes.
Passive Foreign Investment Company Rules
In general, a non-U.S. corporation is a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For the purposes of the above calculations, a non-U.S. corporation that owns directly or indirectly, at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash generally is a passive asset for these purposes, other than certain limited working capital exception. Although we currently do not expect to be a PFIC for our current taxable year, because our PFIC status for any taxable year can be determined only after the end of the year and will depend on the composition of our income and assets and the value of our assets from time to time, there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year.
If we were a PFIC for any taxable year and any of our subsidiaries, consolidated affiliated entities or other companies, in which we own or are treated as owning equity interests were also a PFIC (any such entity, a “Lower-tier PFIC”), U.S. Holders would be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and would be subject to U.S. federal income tax according to the rules described in the subsequent paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) dispositions of shares of Lower-tier PFICs, in each case as if the U.S. Holders held such shares directly, even though the U.S. Holders had not received the proceeds of those distributions or dispositions.
In general, if we were a PFIC for any taxable year during which a U.S. Holder holds our common shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of our common shares would be allocated ratably over the U.S. Holder’s holding period. The amounts allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability for each such year. Furthermore, to the extent that distributions received by a U.S. Holder in any year on its common shares exceed 125% of the average of the annual distributions on the common shares received during the preceding three taxable years or the U.S. Holder’s holding period for the common shares, whichever is shorter, such distributions would be subject to taxation in the same manner.
Alternatively, if we were a PFIC and if our common shares were “regularly traded” on a “qualified exchange,” as defined by applicable Treasury regulations, a U.S. Holder could make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described in the preceding paragraph. Our common shares would be treated as “regularly traded” for any calendar year in which more than a de minimis quantity of our common shares were traded on a qualified exchange on at least 15 days during each calendar quarter. There is uncertainty on whether our common shares are considered to be so traded. U.S. Holders will not be able to make a mark-to-market election with respect to Lower-tier PFICs, if any. Accordingly, if we were a PFIC for any taxable year even if, a U.S. Holder is able to make a mark-to-market election with respect to our shares, such holder may continue to be subject to the general PFIC rules with respect to its indirect interest in any Lower-tier PFICs.
If a U.S. Holder makes a valid mark-to-market election, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of our common shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of our common shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in our common shares will be adjusted to reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition of our common shares will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election, with any excess treated as a capital loss). If a U.S. Holder makes the mark-to-market election, distributions paid on our common shares will be treated as discussed under “Distributions on Common Shares” above.
If we are a PFIC for any taxable year during which a U.S. Holder owns our common shares, we will continue to be treated as a PFIC with respectcost base to the U.S. Holder for all succeeding years during which the U.S. Holder owns our common shares, even if we cease to meet the threshold requirements for PFIC status.of such expired Warrant or Pre-Funded Warrant.
We do not intend to provide the information that would otherwise enable U.S. Holders to make a “qualified electing fund” election, which would have resulted in alternate treatment if we were a PFIC for any taxable year.Dividends
If we were a PFIC for any taxable year during which a U.S. Holder owned any of our common shares, the U.S. Holder would generally be required to file annual reports with the IRS.
The U.S. federal income tax rules relating to PFICs are very complex. U.S. Holders should consult their tax advisers regarding the determination of whether we are a PFIC for any taxable year and the potential application of the PFIC rules in their ownership and disposition of our common shares.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds from the sale or exchange of our common shares that are made within the U.S. or through certain U.S.-related financial intermediaries generally are subject to information reporting and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding, generally on IRS Form W-9. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Certain U.S. Holders who are individuals (or entities formed or availed of to hold certain “specified foreign financial assets”) may be required to report information relating to their ownership of our common shares unless our common shares are held in accounts at financial institutions (in which case the accounts may be reportable if maintained by non-U.S. financial institutions). U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to our common shares.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of our common shares in the capital of the Company by a holder who is not, and is not deemed to be, a resident of Canada for the purposes of the Income Tax Act (Canada) (the “Tax Act”), and who holds such common shares solely as capital property and does not use or hold, and is not deemed to use or hold, our common shares in connection with carrying on a business in Canada, referred to in this summary of Canadian federal income tax consequences as a “U.S. Holder.” This summary is not applicable to a U.S. Holder that is an insurer carrying on an insurance business in Canada and elsewhere.
This summary is based on the current provisions of the Tax Act, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of the Canada Revenue Agency, and the current provisions of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any U.S.) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular circumstances.
Receipt of Dividends
DividendsAmounts paid or credited or deemed to be paid or credited as, on account or in lieu of payment, or in satisfaction of, dividends on the Common Shares to a U.S. Holder by the Company arewill be subject to Canadian withholding tax attax. Under the Convention, the rate of 25% of the gross amount of the dividend unless reduced by the terms of the Canada-U.S. Tax Convention. The rate ofCanadian withholding tax on dividends paid or credited by the Company to a U.S. Holder who is resident in the U.S. for purposes of the Canada-U.S. Tax Convention and entitled to full benefits thereunderthat beneficially owns such dividends is generally reduced to 15% ofunless the gross amount of the dividend (or 5% in the case of a U.S. Holder thatbeneficial owner is a company beneficially owningthat owns at least 10% of the Company’s voting shares). The Companystock at that time, in which case the rate of Canadian withholding tax is requiredreduced to withhold5%.
Dispositions
Upon the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U.S. Holder.
Disposition of Common Shares
A U.S. Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a common share unless such common share constitutes “taxable Canadian property” (as defined inSecurity (but not upon the Tax Act) of the U.S. Holder at the time of disposition and the gain is not exempt from tax pursuant to the terms of the Canada-U.S. Tax Convention.
Provided our common shares are listed on a “designated stock exchange”, as defined in the Tax Act at the time of disposition, our common shares will generally not constitute taxable Canadian propertyexercise of a U.S. Holder at that time, unless at any time during the 60-month period immediately preceding the disposition the following two conditions are satisfied concurrently: (i) (a) the U.S. Holder; (b) persons with whom the U.S. Holder did not deal at arm’s length; (c) partnerships in which the U.S. HolderWarrant or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships; or (d) any combination of the persons and partnerships described in (a) through (c)Pre-Funded Warrant), owned 25% or more of the issued shares of any class or series of shares of the Company; and (ii) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or any combination of: real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (each as defined in the Tax Act), and options in respect of, or interests in or for civil law rights in, such properties. Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, our common shares may be deemed to be taxable Canadian property. Even if our common shares are taxable Canadian property of a U.S. Holder such U.S. Holder may be exempt from tax under the Tax Act on the disposition of such common shares by virtue of the Canada-U.S. Tax Convention. In cases where a U.S. Holder disposes, or is deemed to dispose, of a common share that is taxable Canadian property of that U.S. Holder, and the U.S. Holder is not entitled to an exemption from tax under the Tax Act or pursuant to the terms of the Canada-U.S. Tax Convention, the U.S. Holder generally will realize a capital gain (or capital loss) in the taxation year of the disposition equal to the amount if any, by which the U.S. Holder’s proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base to the U.S. Holder of such common shares, as the case may be,particular Security immediately before the disposition or deemed disposition.
A U.S. Holder who disposes of a common share that is taxable Canadian property and iswill not exempt frombe subject to tax under the Tax Act in respect of any capital gain realized by virtuesuch U.S. Holder on a disposition of Securities, unless such Securities constitute “taxable Canadian property” (as defined in the Tax Act) of the Canada-U.S. Tax Convention will be obligatedU.S. Holder at the time of disposition and the U.S. Holder is not entitled to comply withrelief under the withholding and reporting obligations imposed under section 116Convention.
Provided that the Common Shares are listed on a designated stock exchange for purposes of the Tax Act and to obtain a certificate pursuant to section 116(which currently includes Canadian Securities Exchange) at the time of the Tax Act.
Capital Gains and Capital Losses
Generally,disposition, the Securities, will generally not constitute taxable Canadian property of a U.S. Holder, is required to include in computing income earned in Canada for a taxation year one-half ofunless: (a) at any time during the amount of any capital gain (a “taxable capital gain”) realized by the U.S. Holder in such taxation year from60-month period immediately preceding the disposition or deemed disposition of the Security (as applicable): (i) 25% or more of the issued shares of any class or series of the share capital of the Company were owned by, or belonged to, one or any combination of (x) the U.S. Holder, (y) persons with whom the U.S. Holder did not deal at arm’s length (within the meaning of the Tax Act) and (z) partnerships in which the U.S. Holder or a person referred to in (y) holds a membership interest directly or indirectly through one or more partnerships; and (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of: (A) real or immovable property situated in Canada, (B) Canadian resource property (as defined in the Tax Act), (C) timber resource property (as defined in the Tax Act), and (D) options in respect of, or interests in, or for civil law rights in, property described in any of (A) through (C) above, whether or not such property exists; or (b) the Security (as applicable) is deemed under the Tax Act to be taxable Canadian property.
If a Security is taxable Canadian property which is not exempt from tax under the Canada-U.S. Tax Convention. Subject to and in accordance with the rules contained in the Tax Act, a U.S. Holder, is required to deduct one-half of the amount of any capital loss (an “allowable capital loss”)gain realized in a particular taxation year fromon the disposition or deemed disposition of such Security may not be subject to Canadian federal income tax pursuant to the terms of the Convention. U.S. Holders whose Securities may be taxable Canadian property against taxable capital gains realized by the U.S. Holder in the year from the disposition or deemed disposition of taxable Canadian property. Allowable capital losses from the disposition or deemed disposition of taxable Canadian property in excess of taxable capital gains realized in a particular taxation year from the disposition or deemed disposition of taxable Canadian property may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years from the disposition or deemed disposition of taxable Canadian property, to the extent and under the circumstances described in the Tax Act.should consult their own tax advisors.
U.S. Holders who hold our common sharesCommon Shares should consult their own tax advisers as to whether their common sharesCommon Shares are taxable Canadian property.
CAUTIONARY STATEMENT ON SERVICE OF PROCESS AND THE ENFORCEMENT OF CIVIL LIABILITIES
We are a British Columbia, Canada company. As a result, the rights of holders of our common sharesCommon Shares will be governed by the laws of British Columbia, Canada and our Articles. The rights of shareholders under the laws of British Columbia, Canada may differ from the rights of shareholders of companies incorporated in other jurisdictions. Some of our directors and some of the named experts referred to in this prospectus are not residents of the U.S. As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. Uncertainty exists as to whether courts in British Columbia, Canada will enforce judgments obtained in other jurisdictions, including the U.S., against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in British Columbia, Canada against us or our directors or officers under the securities laws of other jurisdictions.
UNDERWRITING
ThinkEquity LLC is the representative for the several underwriters of this offering, or the representative. We have entered into an underwriting agreement dated , 2023, with the underwriters named below. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has agreed, severally and not jointly, to purchase, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of Common Units and Pre-funded Units at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this prospectus, the number of shares listed next to its name in the following table:
Underwriters | Number of Common Units | Number of Pre-funded Units | ||||||
ThinkEquity LLC | ||||||||
Total |
The underwriters are committed to purchase all Common Units and Pre-funded Units offered by us, if any are purchased. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, the underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the Common Units and Pre-funded Units offered by us in this prospectus are subject to various representations and warranties and other customary conditions specified in the underwriting agreement, such as receipt by the representative of officers’ certificates and legal opinions.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the Common Units and Pre-funded Units subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by its counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Discounts, Commissions and Reimbursement
The representative has advised us that the underwriters propose to offer the shares to the public at the initial public offering price per share set forth on the cover page of this prospectus. The underwriters may offer Common Units and Pre-funded Units to securities dealers at that price less a concession of not more than $ per security. After the initial offering to the public, the public offering price and other selling terms may be changed by the representative.
The following table summarizes the underwriting discounts and commissions, non-accountable underwriters’ expense allowance and proceeds, before expenses, to us assuming both no exercise and full exercise by the underwriters of their over-allotment option:
Total | ||||||||||||||||
Per Common Unit | Per Pre-funded Unit | Offering without Over- Allotment Option | Offering with Over- Allotment Option | |||||||||||||
Public offering price | $ | $ | $ | $ | ||||||||||||
Underwriting discounts and commissions (7.5%) | ||||||||||||||||
Non-accountable expense allowance (1%) | ||||||||||||||||
Proceeds, before expenses, to us | $ | $ | $ | $ |
Each selling shareholderWe have agreed to reimburse the representative for its out-of-pocket accountable expenses, including for background checks, bound volumes of the securitiespublic offering materials and commemorative mementos and lucite tombstones, the fees and expenses of the representative’s legal counsel, the cost associated with the use of Ipreo’s book building, prospectus tracking and compliance software for this offering, data services and communications expenses, road show expenses, market making and trading, and clearing firm settlement expenses for this offering, up to $222,500 in the aggregate. We have paid an expense deposit of $50,000 to the representative of the underwriters upon execution of an engagement letter relating to this offering (the “Advance”), which will be applied against the actual out-of-pocket accountable expenses that will be incurred by the underwriters in connection with this offering, and will be reimbursed to us to the extent not incurred.
We estimate that the total expenses of this offering payable by us, not including underwriting discounts and commissions, will be approximately $ .
Over-Allotment Option
We have granted the representative an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the representative to purchase up to an aggregate of additional Common Shares, representing 15% of the Common Units sold in the offering, and/or up to Pre-funded Warrants, representing 15% of the Pre-funded Units sold in the offering and/or up to Warrants, representing 15% of the Warrants sold in the offering, in each case, solely to cover over-allotments, if any. The purchase price to be paid per additional Common Share or Pre-funded Warrant by the underwriter shall be equal to the public offering price of one Common Unit or one Pre-funded Unit, as applicable less underwriting discount, and the purchase price to be paid per additional Warrant by the underwriter shall be $0.00001.
Representative’s Warrants
Upon the closing of this offering, we have agreed to issue to the representative, or its designees, warrants to purchase up to Common Shares equal in the aggregate to 5% of the total Common Shares (or in lieu thereof, the Pre-Funded Warrants) sold in this public offering (the “Representative’s Warrants”). The Representative’s Warrants will be exercisable at a per share exercise price equal to $ , which represents 125% of the public offering price per Common Unit sold in this offering. The Representative’s Warrants are exercisable at any of their pledgees, assigneestime and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market in the United States or any other stock exchange, market or trading facility on which the securities are tradedwhole or in private transactions. Thesepart, during the four-and-½-year period commencing six months after the commencement of sales may be at fixed or negotiated prices. “Trading Market” means anyof this offering. The Representative’s Warrants also provide for one demand registration right of the following markets or exchanges on whichshares underlying the common shares is listed or quoted for trading onRepresentative’s Warrants, and unlimited “piggyback” registration rights with respect to the date in question: the Canadian Securities Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange, OTCQB or OTCQX (or any successors to anyregistration of the foregoing).
A selling shareholder may use any one or moreCommon Shares underlying the Representative’s Warrants and customary antidilution provisions. The demand registration right provided will not be greater than five years from the effective date of the following methods when selling securities:
The selling shareholder may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplementstatement related to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commissionoffering in compliance with FINRA Rule 2440; and in5110(g)(8)(C). The piggyback registration right provided will not be greater than seven years from the caseeffective date of a principal transaction a markup or markdownthe registration statement related to this offering in compliance with FINRA IM2440.Rule 5110(g)(8)(D).
In connection withThe Representative’s Warrants and the Common Shares underlying the Representative’s Warrants have been deemed compensation by the Financial Industry Regulatory Authority (“FINRA”) and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The representative, or permitted assignees under such rule, may not sell, transfer, assign, pledge, or hypothecate the Representative’s Warrants or the securities underlying the Representative’s Warrants, nor will the representative engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securitiesRepresentative’s Warrants or interests therein, the selling shareholdersunderlying shares for a period of 180 days from the effective date of the registration statement. Additionally, the Representative’s Warrants may enter into hedging transactions with broker-dealersnot be sold transferred, assigned, pledged or hypothecated for a 180-day period following the effective date of the registration statement except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners. The Representative’s Warrants will provide for adjustment in the number and price of the Representative’s Warrants and the Common Shares underlying such Representative’s Warrants in the event of recapitalization, merger, stock split or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling shareholders may also sell securities short and deliver these securities to close out their short positions,structural transaction, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offereda future financing undertaken by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).us.
The selling shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling shareholders has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
WeRight of First Refusal
Until 24 months from the closing of this offering, the representative shall have an irrevocable right of first refusal to act as sole investment banker, sole book-runner, sole financial advisor, sole underwriter and/or sole placement agent, at the representative’s sole discretion, for each and every future public and private equity offerings for our Company, or any successor to or any subsidiary of our Company, including all equity linked financings, on terms customary to the representative. The representative shall have the sole right to determine whether or not any other broker-dealer shall have the right to participate in any such offering and the economic terms of any such participation. The representative will not have more than one opportunity to waive or terminate the right of first refusal in consideration of any such transaction.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-up Agreements
The Company has agreed with the representative to be subject to a lock-up period of three months following the date of this prospectus. In addition, each of our officers and directors have agreed with the representative to be subject to a lock-up period of six months following the date of this prospectus. This means that, during the applicable lock-up period, we and such persons may not offer for sale, contract to sell, sell, distribute, grant any option, right or warrant to purchase, pledge, hypothecate or otherwise dispose of, directly or indirectly, any of our Common Shares or any securities convertible into, or exercisable or exchangeable for, Common Shares, subject to customary exceptions. The representative may waive the terms of these lock-up agreements in its sole discretion and without notice. In addition, we have agreed to keepnot issue any securities that are subject to a price reset based on the trading prices of our Common Shares or upon a specified or contingent event in the future, or enter into any agreement to issue securities at a future determined price for a period of two years following the closing date of this offering, subject to an exception. The representative may waive this prohibition in its sole discretion and without notice.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members. The underwriters may agree to allocate a number of securities to selling group members for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus effective untilor the earlierregistration statement of which this prospectus forms a part, has not been approved or endorsed by us, and should not be relied upon by investors.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while this offering is in progress.
Over-allotment transactions involve sales by the underwriters of securities in excess of the number of securities the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of securities over-allotted by the underwriters are not greater than the number of securities that they may purchase in the over-allotment option. In a naked short position, the number of securities involved is greater than the number of securities in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing securities in the open market.
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Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared with the price at which it may purchase securities through exercise of the over-allotment option. If the underwriters sell more securities than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the securities in the open market that could adversely affect investors who purchase in this offering.
Penalty bids permit an underwriter to reclaim a selling concession from a syndicate member when the securities originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As a result, the price of our securities in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our securities. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive Market Making
In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our securities on The Nasdaq Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the securities and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Other Relationships
The underwriters and their affiliates may in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they may in the future receive customary fees. The representative of the underwriters acted as the placement agent for our March 2022 offering and received a cash fee equal to 10% of the gross proceeds received by us in the offering and reimbursement of $125,000 for its expenses. Moreover, we issued ThinkEquity LLC and its designees warrants to purchase such number of Common Shares equal to 10% of the units sold in the offering, or warrants to purchase up to 19,628 Common Shares, at an exercise price of $50.40 per share. The representative of the underwriters also received, in connection with our warrant exchange that closed on June 30, 2023, an advisory fee of $62,556 and reimbursement of $25,964 in expenses, and we issued to its designees warrants to purchase up to 5,464 Common Shares at an exercise price of $18.00 per share. Except as disclosed in this prospectus, we have no current arrangements with the underwriters for any further services.
Offer Restrictions Outside of the United States
Other than in the United States, no action has been taken that would permit a public offering of our securities in any jurisdiction where action for the purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that country or jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the dateoffer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area—Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on whichthe basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities. An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
● | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
● | to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements); | |
● | to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or | |
● | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive. |
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France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code Monétaire et Financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 ;and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, or “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be resold bydistributed in Italy and such securities may not be offered or sold in Italy in a public offer within the selling shareholders without registration and without regard to any volume or manner-of-sale limitations by reasonmeaning of Rule 144, withoutArticle 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
○ | to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and | |
○ | in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended. | |
○ | Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be: |
■ | made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and | |
■ | in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws. |
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Any subsequent distribution of the requirement for the Company tosecurities in Italy must be made in compliance with the current public informationoffer and prospectus requirement rules provided under Rule 144 underDecree No. 58 and the Securities Act or any other ruleRegulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of similar effect or (ii) allsuch securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been soldand will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect or (iii) March 29, 2027. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is availablerequirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distributionaccordance with Article 2, paragraph 3 of the resaleFIEL and the regulations promulgated thereunder). Accordingly, the securities may not simultaneously engagebe offered or sold, directly or indirectly, in market making activities with respectJapan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the common sharespublic in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the applicable restricted period,public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in Regulation M, priorthe Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the commencementdisclosure standards for issuance prospectuses under art. 652a or art. 1156 of the distribution. In addition,Swiss Code of Obligations or the selling shareholdersdisclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be subjectfiled with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to applicable provisionsthe recipient only and not for general circulation in Switzerland.
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United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the ExchangeFinancial Services and Markets Act 2000, as amended (“FSMA”) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the rules and regulations thereunder, including Regulation M, whichsecurities may limitnot be offered or sold in the timingUnited Kingdom by means of purchases and sales of the common shares by the selling shareholdersthis document, any accompanying letter or any other person. Wedocument, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will make copiesonly be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of this prospectus availableFSMA does not apply to the selling shareholdersCompany.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have informed themprofessional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the needFinancial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to deliverin Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a copyrelevant person should not act or rely on this document or any of its contents.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this prospectus to each purchaser at or prioroffering.
LEGAL MATTERS
Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, California is acting as counsel to the time of the sale (including by compliance with Rule 172 under the Securities Act).
Company regarding United States securities law matters. The validity of the issuance of the common sharessecurities offered hereby and other matters under the laws of British Columbia, Canada will be passed upon for us by DuMoulin Black LLP, Vancouver, British Columbia, Canada. The representative of the underwriters is being represented by Dentons US LLP, New York, New York.
EXPERTS
EXPERTSThe consolidated financial statements of Permex Petroleum Corporation as of September 30, 2022 and for the year then ended, appearing in this prospectus have been audited by Marcum LLP, independent registered public accounting firm, as set forth in their report thereon (which includes an explanatory paragraph as to the Company’s ability to continue as a going concern) and included in this prospectus, in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Permex Petroleum Corporation as of September 30, 2021 and 2020 and for each of the two years in the periodyear ended September 30, 2021, included in this prospectus and in the registration statement, have been so included in reliance on the report of Davidson & Company LLP, an independent registered public accounting firm, appearing elsewhere herein and in the registration statement, given on the authority of said firm as experts in auditing and accounting.
Davidson & Company LLP, British Columbia, Canada is registered with both the Canadian Public Accountability Board and the U.S. Public Company Accounting Oversight Board.
Certain estimates of our oil and gas reserves and related information included in this prospectus have been derived from reports prepared by the independent engineering firm, MKM Engineering. All such information has been so included on the authority of such firm as an expert regarding the matters contained in its reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including amendments and relevant exhibits and schedules, under the Securities Act covering the common sharessecurities to be sold in this offering. This prospectus does not contain all of the information contained in the registration statement that we filed. You should read the registration statement and its exhibits and schedules for further information with respect to us and our common shares.securities. Each statement made in this prospectus concerning a document filed as an exhibit to the registration statement is qualified by reference to that exhibit for a complete statement of its provisions.
We will becomeare subject to the periodic reporting and other informational requirements of the Exchange Act, which will requirerequires us to file reports, including annual reports, and other information with the SEC.
All information filed with the SEC, including the registration statement, will be available at the SEC’s web site at www.sec.gov. We will also make our filings available on our website at www.permexpetroleum.com. The information on our website, however, is not a part of this prospectus.
Exclusive Information
In evaluating an investment in our common shares,securities, you should rely only on the information contained in this prospectus. We have not authorized any person to provide you with information that is different from that contained in this prospectus.
Industry and Market Data
This prospectus includes information concerning our industry and the markets in which we operate that is based on information from independent industry and research organizations and other third-party sources (including industry publications, surveys and forecasts, and management estimates. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information and such third-party sources do not guarantee the accuracy or completeness of such information.
Management Estimates
Management estimates are derived in part from information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. Our estimates involve risks and uncertainties, and are subject to change based on various factors, including those discussed in this prospectus under the heading “Risk Factors.”
These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by our management. See “Cautionary Note Regarding Forward-Looking Statements.”
References
References
All references to “U.S. Dollars,” “USD” or “$” are to the legal currency of the United States; all references to “CAD$” and “C$” are to the legal currency of Canada. All references to “M$“M$” are in thousands of dollars.
Trademarks, Service Marks, and Trade Names
This prospectus may contain trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the TM, SM, © and ® symbols, but parties may assert, to the fullest extent under applicable law, their rights to these trademarks, service marks, trade names and copyrights.
Date of Information
The information contained in this prospectus is accurate only as of the date of this prospectus. Neither the delivery of this prospectus nor any distribution of securities pursuant to this prospectus shall, under any circumstances, create any implication that there has been no change in the information set forth or incorporated by reference into this prospectus or in our affairs since the date of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
(EXPRESSED IN UNITED STATES DOLLARS)
PERMEX PETROLEUM CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |||
F-2 | |||
CONSOLIDATED FINANCIAL STATEMENTS: | |||
Consolidated Balance Sheets as | |||
Consolidated Statements of Loss and Comprehensive Loss for the Years Ended September 30, | |||
Consolidated Statements of Equity for the Years Ended September 30, | |||
Consolidated Statements of Cash Flows for the Years Ended September 30, | |||
Notes to the Consolidated Financial Statements for the Years Ended September 30, | F-8 | ||
Supplemental Information on Oil And Gas Operations (Unaudited) | F-23 | ||
UNAUDITED FINANCIAL STATEMENTS | |||
Condensed Interim Consolidated Statements of | |||
Condensed Interim Consolidated Statements of | |||
Condensed Interim Consolidated Statements of Cash Flows for the | |||
Notes to |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Directors of
Permex Petroleum Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Permex Petroleum Corporation (the “Company”) as of September 30, 2021, and 2020, and the related consolidated statements of loss and comprehensive loss, equity, and cash flows for the yearsyear ended September 30, 2021, and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021, and 2020, and the results of its operations and its cash flows for the yearsyear ended September 30, 2021, and 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditsaudit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
We have served as the Company’s auditor from 2017 to 2022.
/s/ DAVIDSON & COMPANY LLP | |
Vancouver, Canada | Chartered Professional Accountants |
July 14, 2022 (October 24, 2023 and February, 9, 2023 as to the effects of the 1 for 4 and 1 for 60 reverse stock splits discussed in Note 1)
F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Permex Petroleum Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Permex Petroleum Corporation (the “Company”) as of September 30, 2022, the related consolidated statements of loss and comprehensive loss, equity and cash flows for the year ended September 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022, and the results of its operations and its cash flows for the year ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2017.2022.
Houston, Texas
February 10, 2023, except for the stock split discussed in Note 1, as to which the date is October 25, 2023
F-3 |
/s/ DAVIDSON & COMPANY LLP
Vancouver, Canada Chartered Professional Accountants
July 14, 2022
PERMEX PETROLEUM CORPORATION
AS AT SEPTEMBER 30
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 3,300,495 | $ | 25,806 | ||||
Trade and other receivables, net | 137,214 | 12,984 | ||||||
Prepaid expenses and deposits | 317,277 | 46,151 | ||||||
Total current assets | 3,754,986 | 84,941 | ||||||
Non-current assets | ||||||||
Reclamation deposits | 145,000 | 144,847 | ||||||
Property and equipment, net of accumulated depreciation and depletion | 8,426,776 | 6,638,975 | ||||||
Right of use asset | 240,796 | 72,539 | ||||||
Total assets | $ | 12,567,558 | $ | 6,941,302 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Trade and other payables | $ | 1,561,344 | $ | 402,979 | ||||
Amounts due to related party | - | 16,628 | ||||||
Convertible debenture | 38,291 | 78,500 | ||||||
Lease liability – current portion | 104,224 | 51,963 | ||||||
Total current liabilities | 1,703,859 | 550,070 | ||||||
Non-current liabilities | ||||||||
Asset retirement obligations | 236,412 | 552,594 | ||||||
Lease liability | 140,682 | 26,986 | ||||||
Loan payable | - | 31,400 | ||||||
Warrant liability | 23,500 | - | ||||||
Total liabilities | 2,104,453 | 1,161,050 | ||||||
Equity | ||||||||
Common stock, no par value per share; shares authorized, and shares issued and outstanding as of September 30, 2022 and September 30, 2021, respectively. | 14,337,739 | 8,976,747 | ||||||
Additional paid-in capital | 4,513,194 | 2,476,717 | ||||||
Accumulated other comprehensive loss | (127,413 | ) | (127,413 | ) | ||||
Deficit | (8,260,415 | ) | (5,545,799 | ) | ||||
Total equity | 10,463,105 | 5,780,252 | ||||||
Total liabilities and equity | $ | 12,567,558 | $ | 6,941,302 |
The accompanying notes are an integral part of these consolidated financial statements
F-4 |
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 25,806 | $ | 5,517 | ||||
Trade and other receivables | 12,984 | 44,702 | ||||||
Prepaid expenses and deposits | 46,151 | 15,603 | ||||||
Assets held for sale | - | 2,924,465 | ||||||
84,941 | 2,990,287 | |||||||
Non-current assets | ||||||||
Reclamation deposits | 144,847 | 194,750 | ||||||
Property and equipment | 7,846,145 | 3,765,914 | ||||||
Right of use asset | 72,539 | 49,870 | ||||||
Total assets | $ | 8,148,472 | $ | 7,000,821 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Trade and other payables | $ | 402,979 | $ | 713,696 | ||||
Amounts due to related party | 16,628 | 151,353 | ||||||
Convertible debentures – current portion | 78,500 | 75,000 | ||||||
Lease liability – current portion | 51,963 | 21,202 | ||||||
Liabilities held for sale | - | 1,801,221 | ||||||
550,070 | 2,762,472 | |||||||
Non-current liabilities | ||||||||
Decommissioning obligations | 1,627,465 | 792,814 | ||||||
Convertible debentures | - | 75,000 | ||||||
Lease liability | 26,986 | 31,926 | ||||||
Loan payable | 31,400 | 30,000 | ||||||
Total liabilities | 2,235,921 | 3,692,212 | ||||||
Equity | ||||||||
Common stock, no par value per share; unlimited shares authorized, 66,180,364 and 40,024,114 shares issued and outstanding as of September 30, 2021 and September 30, 2020, respectively. | 8,976,747 | 6,453,039 | ||||||
Share subscription proceeds | 30,456 | 30,456 | ||||||
Reserves | 2,352,649 | 1,192,123 | ||||||
Accumulated other comprehensive loss | (128,532 | ) | (270,235 | ) | ||||
Deficit | (5,318,769 | ) | (4,096,774 | ) | ||||
Total equity | 5,912,551 | 3,308,609 | ||||||
Total liabilities and equity | $ | 8,148,472 | $ | 7,000,821 |
PERMEX PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
YEARS ENDED SEPTEMBER 30
2022 | 2021 | |||||||
Revenues | ||||||||
Oil and gas sales | $ | 815,391 | $ | 46,703 | ||||
Royalty income | 63,068 | 37,922 | ||||||
Total revenues | 878,459 | 84,625 | ||||||
Operating expenses | ||||||||
Production | 829,194 | 59,671 | ||||||
Lease operating expense | ||||||||
General and administrative | 2,796,395 | 496,381 | ||||||
Depletion and depreciation | 105,503 | 60,479 | ||||||
Accretion on asset retirement obligations | 55,030 | 19,907 | ||||||
Foreign exchange gain (loss) | (7,429 | ) | 24,301 | |||||
Forfeiture of reclamation deposit | - | 50,165 | ||||||
Loss on disposal of property and equipment | - | 613,457 | ||||||
Total operating expenses | (3,778,693 | ) | (1,324,361 | ) | ||||
Loss from operations | (2,900,234 | ) | (1,239,736 | ) | ||||
Other income (expense) | ||||||||
Interest income | 5,895 | - | ||||||
Other income | 24,000 | - | ||||||
Forgiveness of loan | 7,800 | - | ||||||
Finance expense | (30,586 | ) | (13,506 | ) | ||||
Gain on settlement of warrant liability | - | - | ||||||
Change in fair value of warrant liability | 178,509 | - | ||||||
Total other income (expense) | 185,618 | (13,506 | ) | |||||
Net loss | (2,714,616 | ) | (1,253,242 | ) | ||||
Deemed dividend arising from warrant modification | - | - | ||||||
Net loss attributable to common stockholders | - | - | ||||||
Other comprehensive income | ||||||||
Foreign currency translation adjustment | - | 142,889 | ||||||
Comprehensive loss | $ | (2,714,616 | ) | $ | (1,110,353 | ) | ||
Basic and diluted loss per common share | $ | ) | $ | ) | ||||
60:1 reverse stock split |
The accompanying notes are an integral part of these consolidated financial statements were authorized for issue by the board of directors on July 14, 2022 and were signed on its behalf by:statements.
PERMEX PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Deficit | Total equity | |||||||||||||||||||
Balance, September 30, 2020 | 166,767 | $ | 6,453,039 | $ | 1,422,477 | $ | (270,302 | ) | $ | (4,292,557 | ) | $ | 3,312,657 | |||||||||||
Acquisition of property | 104,167 | 2,468,750 | - | - | - | 2,468,750 | ||||||||||||||||||
Acquisition of property - warrants | - | - | 1,051,370 | - | - | 1,051,370 | ||||||||||||||||||
Shares issued for services | 4,818 | 54,958 | - | - | - | 54,958 | ||||||||||||||||||
Share-based payments | - | - | 2,870 | - | - | 2,870 | ||||||||||||||||||
Net loss | - | - | - | - | (1,253,242 | ) | (1,253,242 | ) | ||||||||||||||||
Other comprehensive income | - | - | - | 142,889 | - | 142,889 | ||||||||||||||||||
Balance, September 30, 2021 | 275,752 | $ | 8,976,747 | $ | 2,476,717 | $ | (127,413 | ) | $ | (5,545,799 | ) | $ | 5,780,252 | |||||||||||
Private placements | 207,398 | 7,303,161 | 607,170 | - | - | 7,910,331 | ||||||||||||||||||
Exercise of warrants | ||||||||||||||||||||||||
Exercise of warrants, shares | ||||||||||||||||||||||||
Share issuance costs | - | (1,942,169 | ) | 882,972 | - | - | (1,059,197 | ) | ||||||||||||||||
Deemed dividend arising from warrant modification | ||||||||||||||||||||||||
Share-based payments | - | - | 546,335 | - | - | 546,335 | ||||||||||||||||||
Net loss | - | - | - | - | (2,714,616 | ) | (2,714,616 | ) | ||||||||||||||||
Balance, September 30, 2022 | 483,150 | $ | 14,337,739 | $ | 4,513,194 | $ | (127,413 | ) | $ | (8,260,415 | ) | $ | 10,463,105 |
The accompanying notes are an integral part of these consolidated financial statements.
PERMEX PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSSCASH FLOWS
YEARS ENDED SEPTEMBER 30
2021 | 2020 | |||||||
Revenue | ||||||||
Oil and gas sales | $ | 46,703 | $ | 682,786 | ||||
Royalty income | 37,922 | - | ||||||
Total revenue | 84,625 | 682,786 | ||||||
Operating expenses | ||||||||
Producing | 59,671 | 557,624 | ||||||
Accounting and audit | 78,090 | 66,710 | ||||||
Accretion on decommissioning obligations | 11,722 | 45,371 | ||||||
Consulting | 18,394 | 41,724 | ||||||
Depletion and depreciation | 60,479 | 37,291 | ||||||
Filing and transfer agent | 54,822 | 27,922 | ||||||
Interest | 13,506 | 15,905 | ||||||
Investor relations and news dissemination | 72,196 | 45,490 | ||||||
Legal fees | 14,803 | 11,218 | ||||||
Management fees | 149,806 | 144,288 | ||||||
Marketing and promotion | 27,251 | 13,984 | ||||||
Office and miscellaneous | 32,203 | 28,150 | ||||||
Rent | 54,336 | 27,010 | ||||||
Salaries | - | 24,816 | ||||||
Share-based payments | 2,870 | 4,175 | ||||||
Travel | 11,483 | 10,069 | ||||||
Total operating expenses | (661,632 | ) | (1,101,747 | ) | ||||
Operating loss | (577,007 | ) | (418,961 | ) | ||||
Foreign exchange gain (loss) | (24,301 | ) | 5,402 | |||||
Forfeiture of reclamation deposit | (50,165 | ) | - | |||||
Gain on settlement of decommissioning obligations | - | 10,415 | ||||||
Other income | 10,191 | 9,683 | ||||||
Settlement of trade payables | 9,682 | 23,329 | ||||||
Loss on disposal of property and equipment | (613,457 | ) | (879,070 | ) | ||||
Net loss | (1,245,057 | ) | (1,249,202 | ) | ||||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | 141,703 | (39,084 | ) | |||||
Comprehensive loss | $ | (1,102,709 | ) | $ | (1,288,083 | ) | ||
Basic and diluted loss per common share | $ | (0.03 | ) | $ | (0.03 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
PERMEX PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
Number of Shares | Share capital | Reserves | Share subscription proceeds | Accumulated other comprehensive loss | Deficit | Total equity | ||||||||||||||||||||||
Balance, September 30, 2019 | 40,024,114 | $ | 6,453,039 | $ | 1,387,846 | $ | 30,456 | $ | (231,151 | ) | $ | (3,047,470 | ) | $ | 4,592,720 | |||||||||||||
Share-based payments | - | - | 4,175 | - | - | - | 4,175 | |||||||||||||||||||||
Adjustment on cancelation of stock options | - | - | (199,898 | ) | - | - | 199,898 | - | ||||||||||||||||||||
Net loss | - | - | - | - | - | (1,249,202 | ) | (1249,202 | ) | |||||||||||||||||||
Other comprehensive income | - | - | - | - | (39,084 | ) | - | (39,084 | ) | |||||||||||||||||||
Balance, September 30, 2020 | 40,024,114 | $ | 6,453,039 | $ | 1,192,123 | $ | 30,456 | $ | (270,235 | ) | $ | (4,096,774 | ) | $ | 3,308,609 | |||||||||||||
Acquisition of property | 25,000,000 | 2,468,750 | - | - | - | - | 2,468,750 | |||||||||||||||||||||
Acquisition of property - warrants | - | - | 1,180,718 | - | - | - | 1,180,718 | |||||||||||||||||||||
Shares issued for services | 1,156,250 | 54,958 | - | - | - | - | 54,958 | |||||||||||||||||||||
Share-based payments | - | - | 2,870 | - | - | - | 2,870 | |||||||||||||||||||||
Adjustment on cancelation of stock options | - | - | (23,062 | ) | - | - | 23,062 | - | ||||||||||||||||||||
Net loss | - | - | - | - | - | (1,245,057 | ) | (1,245,057 | ) | |||||||||||||||||||
Other comprehensive income | - | - | - | - | 141,703 | - | 141,703 | |||||||||||||||||||||
Balance, September 30, 2021 | 66,180,364 | $ | 8,976,747 | $ | 2,352,649 | $ | 30,456 | $ | (128,532 | ) | $ | (5,318,769 | ) | $ | 5,912,551 |
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (2,714,616 | ) | $ | (1,253,242 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Accretion on asset retirement obligations | 55,030 | 19,907 | ||||||
Depletion and depreciation | 105,503 | 60,479 | ||||||
Foreign exchange loss (gain) | (7,168 | ) | 87,747 | |||||
Forfeiture of reclamation bond | - | 50,165 | ||||||
Forgiveness of loan payable | (7,800 | ) | - | |||||
Finance expense | 18,031 | 13,506 | ||||||
Change in fair value of warrant liability | (178,509 | ) | - | |||||
Gain on settlement of warrant liability | - | - | ||||||
Loss on disposal of property and equipment | - | 613,457 | ||||||
Extinguishment of trade and other payables | (4,368 | ) | (9,682 | ) | ||||
Share-based payments | 546,335 | 2,870 | ||||||
Shares issued for services | - | 54,958 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade and other receivables | (124,230 | ) | 34,092 | |||||
Prepaid expenses and deposits | (271,126 | ) | (29,977 | ) | ||||
Trade and other payables | 584,216 | (234,475 | ) | |||||
Amounts due to related parties | (24,536 | ) | (162,598 | ) | ||||
Right of use asset and lease liability | (785 | ) | 3,010 | |||||
Net cash used in operating activities | (2,024,023 | ) | (749,783 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital expenditures on property and equipment | (1,685,999 | ) | (265,717 | ) | ||||
Proceeds from sale of oil and gas interests | - | 1,123,244 | ||||||
Net cash provided by (used in) investing activities | (1,685,999 | ) | 857,527 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of share capital | 8,112,340 | - | ||||||
Proceeds from issuance of private placement units | - | - | ||||||
Proceeds from exercise of warrants | - | - | ||||||
Share issuance costs | (1,067,868 | ) | - | |||||
Convertible debenture repayment | (34,709 | ) | (79,000 | ) | ||||
Loan from related party | (1,452 | ) | (8,455 | ) | ||||
Loan repayment | (23,600 | ) | - | |||||
Net cash provided by (used in) financing activities | 6,984,711 | (87,455 | ) | |||||
Change in cash and cash equivalents during the year | 3,274,689 | 20,289 | ||||||
Cash and cash equivalents, beginning of the year | 25,806 | 5,517 | ||||||
Cash and cash equivalents, end of the year | $ | 3,300,495 | $ | 25,806 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Common stock issued in connection with property acquisition agreement | $ | - | $ | 2,468,750 | ||||
Share purchase warrants issued in connection with private placements and property acquisition | 1,692,151 | 1,051,370 | ||||||
Share purchase warrants issued in connection with exercise of warrants | - | - | ||||||
Trade and other payables related to property and equipment | 647,252 | 68,735 | ||||||
Adjustments to asset retirement obligations | (371,212 | ) | 376,647 | |||||
Supplemental cash flow disclosures: | ||||||||
Interest paid | 24,536 | 13,090 |
The accompanying notes are an integral part of these consolidated financial statements.
PERMEX PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (1,245,057 | ) | $ | (1,249,202 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Accretion on decommissioning obligations | 11,722 | 45,371 | ||||||
Depletion and depreciation | 60,479 | 37,291 | ||||||
Foreign exchange loss (gain) | 87,747 | (2,208 | ) | |||||
Forfeiture of reclamation bond | 50,165 | - | ||||||
Interest | 13,506 | 15,904 | ||||||
Gain on settlement of decommissioning obligations | - | (10,415 | ) | |||||
Settlement of trade payables | (9,682 | ) | (23,329 | ) | ||||
Proceeds from redemption of credit card deposit | - | 18,600 | ||||||
Share-based payments | 2,870 | 4,175 | ||||||
Shares issued for services | 54,958 | - | ||||||
Loss on disposal of property and equipment | 613,457 | 879,070 | ||||||
Trade and other receivables | 34,092 | 58,169 | ||||||
Prepaid expenses and deposits | (29,977 | ) | 40,218 | |||||
Trade and other payables | (234,475 | ) | 82,876 | |||||
Amounts due to related parties | (162,598 | ) | 102,052 | |||||
Right of use asset and lease liability | 46,942 | 24,194 | ||||||
Net cash used in operating activities | (705,851 | ) | 22,766 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital expenditures on property and equipment | (265,717 | ) | (128,752 | ) | ||||
Proceeds from sale of oil and gas interests | 1,123,244 | - | ||||||
Net cash provided by (used in) investing activities | 857,527 | (128,752 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Convertible debentures | (79,000 | ) | 148,800 | |||||
Loan proceeds | - | 29,760 | ||||||
Loan from related party | (8,455 | ) | (48,793 | ) | ||||
Lease payments | (43,932 | ) | (20,962 | ) | ||||
Net cash provided by (used in) financing activities | (131,387 | ) | 108,805 | |||||
Change in cash during the year | 20,289 | 2,819 | ||||||
Cash, beginning of the year | 5,517 | 2,698 | ||||||
Cash, end of the year | $ | 25,806 | $ | 5,517 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Common stock issued in connection with property acquisition agreement | $ | 2,468,750 | $ | - | ||||
Common stock purchase warrants issued in connection with property acquisition agreement | 1,180,718 | - | ||||||
Trade and other payables related to property and equipment | 68,735 | 157,240 | ||||||
Adjustments to decommissioning liabilities | 796,809 | 189,375 | ||||||
Supplemental cash flow disclosures: | ||||||||
Interest paid | 13,090 | - |
The accompanying notes are an integral part of these consolidated financial statements.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
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 Suite 500, 666 Burrard Street, Vancouver, British Columbia, Canada, V6C 2X8 and its US office at Suite 700, 100 Crescent Court,925, 2911 Turtle Creek Blvd, Dallas, Texas, 75201.75219. 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” and on the OTCQB under the symbol “OILCF”“OILCD”.
On October 26, 2022, the Company’s board of directors approved a reverse stock split of the Company’s issued and outstanding common stock at a 1 for 60 ratio, which was effective November 2, 2022. 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. The par value and authorized shares of common stock were not adjusted as a result of the reverse stock split. 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 for all periods presented.
2.SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Permex Petroleum US Corporation and have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
These consolidated financial statements are presented in United States dollars (“USD”). The functional currency of the Company is the Canadian dollar (“CAD”). The functional currency for the subsidiary of the Company is the United States dollar (“USD”).
Principles of Consolidation
The accompanying consolidated financial statements include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries.Corporation. All intercompany balances and transactions have been eliminated.
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 $8,260,415 and has not yet achieved profitable operations. The Company has been relying on equity financing and loans from related parties to fund its operation in the past. While the Company has been successful in securing financing to date, 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.
Management plans to fund operations of the Company with its current working capital and through increasing productions from its oil and gas leases. The Company also expects to raise additional funds through equity 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. Management believes that this plan provides an opportunity for the Company to continue as a going concern.
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, meets 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.
F-8 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
2. | Significant Accounting Policies (cont’d…) |
Use of 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.
Significant estimates have been used by management in conjunction with the following: (i) amounts subject to allowancespetroleum and returns;natural gas reserves; (ii) the fair value of assets when determining the existence of impairment factors and the amount of impairment, if any; (iii) the costs of site restoration when determining decommissioning liabilities;asset retirement obligations; (iv) income taxes receivable or payable; (v) the useful lives of assets for the purposes of depreciation; (vi) petroleumgeneral credit risk associated with receivables and natural gas reserves;other assets; and (vii) 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.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Trade and other receivables
Trade and other receivables are stated at net realizable value. The majority of customers are not extended credit and therefore time to maturity forthe majority of the receivables is short.has payment terms of 30 days or less. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off based on a past history of write-offs, collections, and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon terms. Given the nature and balances of the Company’s receivables the Company has no material loss allowance as at September 30, 20212022 and September 30, 2020.2021.
Property and equipment
The Company follows the successful efforts method of accounting for its oil and gas properties. All costs for development wells along with related acquisition costs, the costs of drilling development wells, and related asset retirement obligation (ARO) assets are capitalized. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with non-productive exploratory wells, delay rentals and exploration overhead are expensed. Costs of drilling exploratory wells are capitalized pending determination of whether the wells found proved reserves. Costs of wells that are assigned proved reserves remain capitalized. Costs also are capitalized for exploratory wells that have found crude oil and natural gas reserves even if the reserves cannot be classified as proved when the drilling is completed, provided the exploratory well has found a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. The Company groups its oil and gas properties with a common geological structure or stratigraphic condition (“common operating field”) for purposes of computing depletion expenses, assessing proved property impairments and accounting for asset dispositions.
Capitalized costs of proved oil and gas properties are depleted by individual field using a unit-of-production method based on proved and probable developed reserves. Proved reserves are estimated using reserve engineer reports and represent the estimated quantities of crude oil, natural gas and natural gas liquids, which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible.
F-9 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
2. | Significant Accounting Policies (cont’d…) |
Property and equipment (cont’d…)
Proved oil and natural gas properties are assessed for possible impairment by comparing their carrying values with their associated undiscounted, future net cash flows. Events that can trigger assessments for possible impairments include write-downs of proved reserves based on field performance, significant decreases in the market value of an asset (including changes to the commodity price forecast or carbon costs), significant change in the extent or manner of use of or a physical change in an asset, and a more-likely-than-not expectation that a long-lived asset or asset group will be sold or otherwise disposed of significantly sooner than the end of its previously estimated useful life. Impaired assets are written down to their estimated fair values, generally their discounted, future net cash flows. For proved oil and natural gas properties, the Company performs impairment reviews on a field basis, annually or as appropriate.
Other corporate property and equipment consist primarily of leasehold improvements, vehicle, and computeroffice furniture and equipment and are stated at cost less accumulated depreciation. The capitalized costs are generally depreciated on a straight line basis over their estimated useful lives as follows:
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Property and equipment(cont’d…)ranging from three to five years.
For property dispositions, measurement is at fair value, unless the transaction lacks commercial substance or fair value cannot be reliably measured. Where the exchange is measured at fair value, a gain or loss is recognized in net income. Any deferred consideration recorded on property dispositions are recognized as revenue in the statement of loss and comprehensive loss over the reserve life.
Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field’s depletion rate. These gains and losses are classified as asset dispositions in the accompanying consolidated statements of loss and comprehensive loss. Partial common operating field sales or dispositions deemed not to significantly alter the depletion rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.
Impairment of long-lived assets
The Company assesses long-lived assets for impairment in accordance with the provisions of the Financial Account Standards Board Accounting Standards Board ASC 360, Property, Plant and Equipment. Long-livedCodification (“ASC”) regarding long-lived assets. It requires that long-lived assets (asset group), such as property and equipment and capitalized software development costs subject to amortization, arebe reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of thean asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceedsthrough the sum of theestimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount ofassets. Whenever any such impairment exists, an impairment loss if any, is measured aswill be recognized for the difference betweenamount by which the carrying value ofexceeds the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. As of September 30, 2022 and September 30, 2021, and 2020, no impairment charge has been recorded.
Decommissioning liabilitiesAsset retirement obligations
The Company’s activities give rise to dismantling, decommissioning,Company recognizes asset retirement obligations (“ARO”) associated with tangible assets such as well sites when there is a legal obligation associated with the retirement of such assets and site disturbance remediation activities. A provision is made for the estimated cost of site restoration and capitalized in the relevant asset category.
Decommissioning liabilitiesamount can be reasonably estimated. The ARO are measured at the present value of management’s best estimate of the expenditure required to settle the present obligationfuture remediation expenditures at the reporting date. Changes inThe initial measurement of an ARO is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. When the assumption used to estimate a recorded ARO change, a revision is recorded to both the ARO and the asset retirement cost. The ARO is accreted to its then present value of the estimated expenditure are reflected as an adjustment to the provisioneach period, and the relevant asset. The unwinding ofasset retirement cost is depreciated using a systematic and rational method similar to that used for the discount on the decommissioning provision is recognized as an accretion expense. Actual costs incurred upon settlement of the decommissioning liabilities are charged against the provision to the extent the provision was recognized.associated property and equipment.
Decommissioning obligations require the use of management’s best estimates of future decommissioning expenditures, expected timing of expenditures and future inflation rates. A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability. Provisions are not recognized for future operating losses.
F-10 |
Provisions for decommissioning associated with the Company’s oil and gas operations are based on current legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and cash outflows may differ from estimates due to changes in laws and regulations, public expectations, prices, discovery and analysis of site conditions and changes in clean up technology. Estimates are made using internal and external information.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
SIGNIFICANT ACCOUNTING POLICIES (cont’d…) |
Fair value measurement
Fair value accounting is applied for all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows the established framework for measuring fair value and expands disclosures about fair value measurements.
The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement.measurement.
Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.access.
Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Level 3 – Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’sentity’s own assumptions, as there is little, if any, related market activity.
The carrying values of cash and cash equivalents, trade receivable, other current receivables, due from/to related parties, trade payable, other current payables, accrued expenses, convertible debenture and lease liability included in the accompanying consolidated balance sheets approximated fair value at September 30, 2022 and September 30, 2021. The financial statements as of and for the years ended September 30, 20212022 and 2020,September 30, 2021, do not include any recurring or nonrecurring fair value measurements relating to assets or liabilities.
Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.
Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company has not elected to measure any existing financial instruments at fair value. However, it may elect to measure newly acquired financial instruments at fair value in the future.future.
Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding in the period. The diluted EPS reflects all dilutive potential common share equivalents, in the weighted average number of common shares outstanding during the period, if dilutive. All of the outstanding convertible securities, stock options and warrants were anti-dilutive for the years ended September 30, 2022 and 2021.
F-11 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
SIGNIFICANT ACCOUNTING POLICIES (cont’d…) |
Leases
At inception of a contract, the Company assesses whether a contract is, or contains a lease based on whether the contract conveys the right to control the use of an identified asset for a period in exchange for consideration.
The Company recognizes a right-of-use asset and a lease obligationliability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease obligationliability adjusted for any lease payments made at or before the commencement date.
The lease obligation is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease obligation.liability. The lease obligationliability is subsequently measured at amortized cost using the effective interest rate method.
Share capital
The Company records proceeds from the issuance of its common shares as equity. Incremental costs directly attributable to the issue of new common shares are shown in equity as a deduction, net of tax, from the proceeds. Common shares issued for consideration other than cash are valued based on their market value at the date that the shares are issued.
The fair value of warrants issued with private placement units are classified as equity and initially recorded at fair value with no subsequent remeasurement.is determined using the Black-Scholes option pricing model. Proceeds from the issuance of private placement units are allocated between the private placement warrants and common shares on a relative fair value basis. Share purchase warrants with exercise prices denominated in a currency other than its functional currency are classified as a liability. Proceeds from the issuance of private placement units are first allocated to the warrant liability based on their fair value and the residual is allocated to common shares issued while for equity warrants, proceeds are allocated on a relative fair value basis. The changes in fair value of the warrant liability are recorded in the statement of loss and comprehensive loss.
Earnings (loss) per shareWarrants issued for oil and gas interests and warrants issued as finder’s fees are share-based payments and are measured at fair value on the date of the grant as determined using the Black-Scholes option pricing model.
Basic earnings (loss) per share (“EPS”) is calculated by dividing the EPS attributable to common shareholders by the weighted average number of common shares outstanding in the period. The diluted EPS reflects all dilutive potential common shares equivalents, in the weighted average number of common shares outstanding during the period, if dilutive. All of the outstanding convertible securities, stock options and warrants were anti-dilutive for the years ended September 30, 2021 and 2020.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Share-based payments
The Company issues stock options and other share-based compensation to directors, employees and others service providers. Equity awards including stock options and share purchase warrants are measured at grant date at the fair value of the instruments issued and amortized over the vesting periods using a graded approach. The amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest. Each tranche in an award is considered a separate grant with a different vesting date and fair value and is accounted for on that basis.
The offset to the recorded cost is to share-based payments reserve.approach. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount ultimately recognized as an expense is based on the number of options that eventually vest. Consideration received on the exercise of stock options is recordedThe Company has elected to account for forfeitures as share capital and the related share-based payments reserve is transferred to share capital.they occur rather than estimate expected forfeitures.
The fair value of the equity awards is determined using the Black-Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility), weighted average expected life of the instruments (based on historical experience), expected dividends, and the risk-free interest rate (based on government bonds).
F-12 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d…) |
Revenue
In accordance with ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when a customer obtainsthe performance obligation is satisfied, which typically occurs at the point in time when control of a promised good. the product transfer to the customer. For natural gas, this is generally at the time product enters the pipeline. For crude oil, this is generally at the time the product reaches a trucking terminal. For natural gas liquids, this is generally at the time the product reaches a gas plant. The amount of revenue recognized reflects consideration that the Company expects to be entitled to receive in exchange for these goods, net of discounts, customs duties, royalties and withholding tax. Royalty income represents net revenue interests from the sale of crude oil and natural gas and is recognized when the operators of the properties complete the sale of crude oil and natural gas.
For natural gas, this is generally at the time product enters the pipeline. For crude oil, this is generally at the time the product reaches a trucking terminal. For natural gas liquids, this is generally at the time the product reaches a gas plant.loaded into customer operated transports. Revenue is measured net of discounts, customs duties, royalties and withholding tax. Royalty income represents net revenue interests from the sale ofcertain crude oil and natural gas wells and is recognized upon the operators of the properties completing the sale of crudeproducing revenue from subject oil and natural gas.gas wells.
The Company records revenue in the month production is delivered to the purchaser. However, production statements for oil and gas sales may not be received until the following month end after the products are purchased, and as a result, the Company is required to estimate the amount of revenue to be received. The Company records the differences between its estimates and the actual amounts received for revenue in the month that payment is received from the customer. Identified differences between the Company’s revenue estimates and actual revenue received historically have not been significant.are $1,395 and $nil for years ended September 30, 2022 and September 30, 2021, respectively. The Company believes that the pricing provisions of its oil, natural gas and natural gas liquids contracts are customary in the industry. To the extent actual volumes and prices of oil and natural gas sales are unavailable for a given reporting period because of timing or information not received from third parties, the revenue related to sales volumes and prices for those good sold are estimated and recorded.
The Company does not have any contract assets or liabilities, or capitalized contract costs.
Foreign Currency
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Foreign currenciesThese consolidated financial statements are presented in United States dollars (“U.S. dollar”). The functional currency of the Company and the subsidiary of the Company is the U.S. dollar. The Company changed its functional currency from Canadian dollars (“CAD”) to the U.S. dollars as at October 1, 2021. The change in functional currency from Canadian dollars to U.S. dollars is accounted for prospectively from October 1, 2021. Management determined that the Company’s functional currency had changed based on the assessment related to significant changes of the Company’s economic facts and circumstances. These significant changes included the fact that the Company’s equity financings and the primary economic environment are now in the U.S. as well as the expectation of the majority of the Company’s expenses will be denominated in U.S. dollars. Moreover, the Company’s place of business and management are now located in the United States.
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated using the historical rate on the date that the fair value was determined. All gains and losses on translation of these foreign currency transactions are charged to profit or loss.
F-13 |
Financial statements of the parent company prepared under their functional currencies are translated into United States dollars for consolidation purposes as follows: assets and liabilities are translated using the exchange rate prevailing at the reporting date; revenue and expenses are translated using the average rates of exchange for the period. Gains and losses resulting from translation adjustments are recorded to other comprehensive income (loss) and accumulated as a separate component of shareholders’ equity, described as foreign currency translation adjustment.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d…) |
Income taxes
Current taxes receivable or payable are estimated on taxable income or loss for the current year at the statutory tax rates enacted or substantively enacted at the reporting date.
Deferred income tax isassets and liabilities are recognized on temporaryfor the estimated future tax consequences attributable to differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are measured at the tax rates that have been enacted or substantially enacted at the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets also result from unused loss carry forwards, resource related pools and other deductions. At the end of each reporting year the Company reassesses unrecognized deferred tax assets. Deferred income tax assets are recognized for unused tax losses, tax credits and deductible temporary differences, only toreduced by a valuation allowance when, in the extent thatopinion of management, it is probablemore likely than not that future taxable profitsome portion or all of the deferred tax assets will not be available against which they can be utilized.realized.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority.
New accounting standards
PERMEX PETROLEUM CORPORATIONThere are not currently any new or pending accounting standards that have a significant impact on the Company’s consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER3.REVENUE
Revenue from contracts with customers is presented in “Oil and gas sales” on the Consolidated Statement of Loss and Comprehensive Loss.
As of September 30, 2022 and September 30, 2021, receivable from contracts with customers, included in trade and other receivables, were $56,639 and $nil, respectively.
The following table present our revenue from contracts with customers disaggregated by product type and geographic areas.
SCHEDULE OF REVENUE DISAGGREGATED BY PRODUCT TYPE AND 2020GEOGRAPHIC AREAS
1 | 2 | 3 | ||||||||||
Year ended September 30, 2022 | Texas | New Mexico | Total | |||||||||
Crude oil | $ | 621,275 | $ | 140,236 | $ | 761,511 | ||||||
Natural gas | 53,880 | - | 53,880 | |||||||||
Revenue from contracts with customers | $ | 675,155 | $ | 140,236 | $ | 815,391 |
1 | 2 | 3 | ||||||||||
Year ended September 30, 2021 | Texas | New Mexico | Total | |||||||||
Crude oil | $ | 44,425 | $ | - | $ | 44,425 | ||||||
Natural gas | 2,278 | - | 2,278 | |||||||||
Revenue from contracts with customers | $ | 46,703 | $ | - | $ | 46,703 |
New accounting standards
4.CONCENTRATION OF CREDIT RISK
In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the guidance on the issuer’s accounting for convertible debtThe Company’s financial instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock, unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 requires entitiesare exposed to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect the amount or timing of an entity’s future cash flows related to those instruments. ASU 2020-06 further removes three of the conditions for equity classification from ASC 815-40-25-10 and requires freestanding contracts on an entity’s own equity that do not qualify as equity under ASC 815-40 to be accounted for at fair value, with changes in fair value recognized in earnings, irrespective of whether such contracts meet the definition of a derivative in ASC 815. ASU 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 during the year ended September 30, 2021.
In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments — Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires more timely recognitionconcentrations of credit losses on loansrisk consist primarily of its cash equivalents and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for non-public companies to fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.
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.
DuringThe majority of the year endedCompany’s receivable balance is concentrated in trade receivables, with a balance of $91,928 as of September 30, 2021, the Company generated 49% of total revenue from one customer (2020 - 45%). As at September 30, 2021, one customer2022. Three customers represented $2,927 (26%$79,942 (87%) of the trade receivable balance. The Company routinely assesses the financial strength of its customers. The non-trade receivable balance (2020 - one customer represented $38,465 (95%))consists of GST recoverable of $39,770 and interest receivable of $5,516. GST recoverable is due from the Canadian Government. Interest receivable is due from a financial institution with high credit rating. It is in management’s opinion that the Company is not exposed to significant credit risk. To date, the Company has not recognized any credit losses on its receivables.
F-14 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
5.ACQUISITION AND DISPOSITION
Acquisition
During the year ended September 30, 2021, the Company and its wholly owned subsidiary, Permex Petroleum US Corporation, acquired a 100% Working Interest and a 81.75% Net Revenue Interest in the Breedlove “B” Clearfork leases located in Martin County, Texas. The Company issued common shares and share purchase warrants as consideration for this acquisition. The Company valued the common shares issued at a fair value of $2,468,750. The share purchase warrants were valued at $ using the Black-Scholes option pricing model (assuming a risk-free interest rate of %, an expected life of -years, annualized volatility of % and a dividend rate of %). The warrants have an exercise price $ per share (CAD$ ) and are exercisable until September 30, 2031.
Disposition
During the year ended September 30, 2021, the Company sold its interests in the Peavy leases together with reclamation obligations for $10,000 and recognized a loss of $604,687 from the sale. The Company also recognized a loss of $8,770 from the disposal of equipment.
6. PROPERTY AND 2020EQUIPMENT
Property and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
September 30, 2022 | September 30, 2021 | |||||||
Oil and natural gas properties, at cost | $ | 8,029,234 | $ | 6,723,778 | ||||
Construction in progress | 460,306 | - | ||||||
Less: accumulated depletion | (184,658 | ) | (84,803 | ) | ||||
Oil and natural gas properties, net | 8,304,882 | 6,638,975 | ||||||
Other property and equipment, at cost | 127,542 | - | ||||||
Less: accumulated depreciation | (5,648 | ) | - | |||||
Other property and equipment, net | 121,894 | - | ||||||
Property and equipment, net | $ | 8,426,776 | $ | 6,638,975 |
Depletion and depreciation expense was $105,503 and $60,479 for the years ended September 30, 2022 and September 30, 2021, respectively.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
7.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:
SCHEDULE OF RIGHT OF USE OPERATING LEASES
2022 | 2021 | |||||||
Right-of-use assets | $ | 240,796 | $ | 72,539 | ||||
Lease liabilities | ||||||||
Balance, beginning of the year | $ | 78,949 | $ | 53,128 | ||||
Addition | 220,368 | 57,357 | ||||||
Interest expense | 9,042 | 9,812 | ||||||
Lease payments | (63,453 | ) | (43,932 | ) | ||||
Foreign exchange movement | - | 2,584 | ||||||
Balance, end of the year | $ | 244,906 | $ | 78,949 | ||||
Current lease liabilities | $ | 104,224 | $ | 51,963 | ||||
Long-term lease liabilities | $ | 140,682 | $ | 26,986 |
The Company is engaged infollowing table presents the exploration for,Company’s total lease cost.
SCHEDULE OF LEASE COST
2022 | 2021 | |||||||
Amortization of right-of-use assets | $ | 52,111 | $ | 37,129 | ||||
Interest on lease liabilities | 9,042 | 9,812 | ||||||
Variable lease expense | 36,216 | 16,564 | ||||||
Sublease income | (36,633 | ) | (10,191 | ) | ||||
Rent subsidy | (1,644 | ) | (9,169 | ) | ||||
Net lease cost | $ | 59,092 | $ | 44,145 |
As of September 30, 2022, maturities of the Company’s operating lease liabilities are as follows:
SCHEDULE OF FUTURE LEASE PAYMENTS
Year | ||||
2023 | $ | 110,593 | ||
2024 | 82,190 | |||
2025 | 84,664 | |||
2026 | 14,180 | |||
Total lease payments | 291,627 | |||
Less: imputed interest | (46,721 | ) | ||
Total lease liabilities | $ | 244,906 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
8.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 development of, petroleum and natural gas projects in the United States. The Company holds 100% working interests and 71.9% to 81.75% net revenue interests and certain royalty interests in the variousCompany’s oil and gas properties located in Texas and New Mexico.properties. Changes to the asset retirement obligations are as follows:
SCHEDULE OF ASSET RETIREMENT OBLIGATIONS
2022 | 2021 | |||||||
Decommissioning obligations, beginning of the year | $ | 552,594 | $ | 271,402 | ||||
Obligations recognized | - | 258,726 | ||||||
Obligations derecognized | - | (125,511 | ) | |||||
Revisions of estimates | (371,212 | ) | 117,921 | |||||
Accretion expense | 55,030 | 19,907 | ||||||
Foreign exchange movement | - | 10,149 | ||||||
Decommissioning obligations, ending of the year | $ | 236,412 | $ | 552,594 |
During the year ended September 30, 2022, the Company had revision of estimates totaling $371,212 (2021 - increase of $117,921) primarily due to changes in future cost estimates and retirement dates for its oil and gas assets.
Reclamation bonds
As of September 30, 2021,2022, the Company held reclamation bonds of $144,847 (2020$145,000 (September 30, 2021 - $194,750)$144,847), which are expected to be released after all reclamation work has been completed with regard to its oil and natural gas interests. During the year ended September 30, 2021, the Company wrote off $50,165$50,165 of a reclamation deposit forfeited by the Texas State government due to a violation on a previouspreviously owned property.
Property and equipment9.DEBT
Property and equipment asConvertible debenture
As of September 30, 2021 and 2020 consisted2022, the Company had a debenture loan of the following:
2021 | 2020 | |||||||
Oil and natural gas properties | $ | 7,954,807 | $ | 3,803,800 | ||||
Corporate assets | - | 42,436 | ||||||
Property and equipment, at cost | 7,954,807 | 3,846,236 | ||||||
Less: accumulated depreciation and depletion | (108,662 | ) | (80,322 | ) | ||||
Property and equipment, net | $ | 7,846,145 | $ | 3,765,914 |
Depreciation and depletion expense was $60,479 and $37,291 for the years ended September$73,000 (CAD$100,000) (September 30, 2021 and 2020, respectively.
Acquisition
During the year ended September 30, 2021, the Company, through its wholly owned subsidiary, Permex Petroleum US Corporation, acquired a 100% Working Interest and a 81.75% Net Revenue Interest in the Breedlove “B” Clearfork leases located in Martin County, Texas. The Company issued 25,000,000 common shares and 12,500,000 share purchase warrants as consideration for this acquisition. The Company valued the 25,000,000 common shares issued at a fair value of $2,468,750. The share purchase warrants were valued at $1,180,718 using the Black-Scholes option pricing model (assuming a risk-free interest rate of 1.51%, an expected life of 10-years, annualized volatility of 131.82% and a dividend rate of 0%- $78,500). The warrants have an exercise price $0.16 per share (CAD$0.20) and are exercisable until October 1, 2031.
Dispositions
During the year ended September 30, 2021, the Company sold its interests in the Peavy leases together with reclamation obligations for $10,000 and recognized a loss of $604,687 from the sale. The Company also recognized a loss of $8,770 from the disposal of equipment.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Assets held for sale
During the year ended September 30, 2020, the Company initiated a plan to dispose of its interest in certain oil and gas leases. As a result, the carrying costs of the related assets and its associated decommissioning liabilities were included in a disposal group and classified as assets held for sale and liabilities held for sale, respectively, at September 30, 2020. The disposal group classified as held for sale were measured at the fair value less costs to sell and an impairment loss of $879,070 was recognized in the profit and loss during the year ended September 30, 2020. The Company believes the disposal group is not a separate major line of business; therefore, disclosure of discontinued operation is not being presented.
The recoverable amount of the disposal group as of September 30, 2020 is as follows.
Assets held for sale | ||||
Oil and gas properties | $ | 2,924,465 | ||
Liabilities held for sale | ||||
Decommissioning liabilities | $ | 1,801,221 |
During the year ended September 30, 2021, the Company sold its interest in the oil and gas leases classified in assets and liabilities held for sale for $1,123,244.
The total future decommissioning obligations are based on the Company’s net ownership in wells and facilities, estimated costs to reclaim and abandon the wells and facilities, and the estimated timing of the costs to be incurred in future periods. The total undiscounted amount of estimated cash flows required to settle the Company’s obligations is approximately $2,836,777 as at September 30, 2021 (2020 - $1,271,020) and expected to be incurred between 2031 to 2041. The estimated net present value of the decommissioning obligations was calculated using an inflation factor of 2.0% (2020 - 2.0%) and discounted using a risk-free rate of 2.02% (2020 - 1.93%) based on expected settlement date.
Changes to the decommissioning obligations are as follows:
2021 | 2020 | |||||||
Decommissioning obligations, beginning of the year | $ | 792,814 | $ | 2,382,573 | ||||
Obligations acquired | 784,418 | - | ||||||
Obligations derecognized | (140,704 | ) | (116,192 | ) | ||||
Change in estimates | 234,331 | - | ||||||
Change in discount rate | (81,236 | ) | 295,152 | |||||
Accretion expense | 11,722 | 45,371 | ||||||
Reclassification to liabilities held for sale | - | (1,801,221 | ) | |||||
Foreign exchange movement | 26,120 | (12,869 | ) | |||||
$ | 1,627,465 | $ | 792,814 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
During the year ended September 30, 2021, the Company derecognized $140,704 (2020 - $116,192) in decommissioning obligations as a result of an assignment of certain oil and gas interests. The decommissioning obligations were offset by the decommissioning provision of $127,510 (2020 - $105,777) and a gain of $13,194 was netted against the loss realized from the sale of properties (2020 - a gain of $10,415 realized).
Convertible debentures
The Company issued a total of $150,000 (CAD$200,000) in convertible debentures to the CEO and a director of the Company on October 17, 2019 and February 21, 2020 for cash.outstanding. The debentures aredebenture loan is secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, have a maturity date of September 30, 2021 and February 20, 2022, and bearbears interest at a rate of 12%12% per annum payable on maturity.and has a maturity date of December 20, 2022. The debentures aredebenture is convertible at the holder’s option into units of the Company at $0.12 (CAD$0.15) $26.28 (CAD$per unit. Each unit will be comprised of one common share of the Company and one share purchase warrant; each warrant entitles the holder to acquire one additional common share for a period of ) three years at an exercise price of $0.16$35.04(CAD$ ).
During the year ended September 30, 2022, the Company repaid $34,709 of the loan (CAD$0.20)47,546). Subsequent to September 30, 2022, the Company repaid the remaining principal loan amount of CAD$52,454.
During the yearyears ended September 30, 20212022 and 2020, the Company accrued interest of $9,480 and $13,991, respectively, and is included within amounts due to related party on the consolidated balance sheets. During the year ended September 30, 2021, the Company repaid $79,000 (CAD$100,000) of the convertible debenture together with accruedrecorded interest of $13,090.$9,360 and $13,506, respectively.
Loan payable
In May 2020, the Company opened a Canada Emergency Business Account (“CEBA”) and received a loan of $30,000$28,640 (CAD$40,000)40,000) from the Canadian Government.
The CEBA program was established to provide interest-free loans of up to CAD$60,000 to small businesses and not-for-profits to help them cover operating costs during the COVID-19 pandemic. The loan iswas unsecured and non-interest bearing with an originala repayment deadline of December 31, 2022. In January2023. During the year ended September 30, 2022, the Canadian government extended the repayment deadline to December 31, 2023 in order forCompany repaid the loan to be considered for partial forgivenessbalance of up to one-third$23,600 (CAD$30,000) and recognized a gain of $7,800 (CAD$10,000) on the balance. Any loans not repaid by December 31, 2023 convert to two-year term loans bearing interest at an annual rate of 5% starting January 1, 2024, with loans fully due by December 31, 2025.
Lease Liabilityforgiven amount.
The Company has entered into office lease agreements for its office premises for terms ending in 2023. As of September 30, 2021, the Company’s lease had a weighted-average remaining term of 1.6 years. The undiscounted future lease payments as of September 30, 2021 are as follows:
F-17 |
2022 | $ | 55,402 | ||
2023 | 31,885 | |||
$ | 87,287 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
10.RELATED PARTY TRANSACTIONS
i) | ||
ii) | In February 2020, the Company issued $76,000 (CAD$100,000) in convertible debenture to the CEO of the Company for cash. The debenture loan is secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, bears interest at a rate of 12% per annum and has an original maturity date of February 20, 2022. During the year ended September 30, 2022, the Company extended the maturity date to December 20, 2022 and repaid $34,709 of the loan (CAD$47,546). During the years ended September 30, 2022 and September 30, 2021, the Company recorded interest of $9,360 and $9,480, respectively. As at September 30, 2021, accrued interest of $15,176 was included in amounts due to related parties. | |
iii) | The Company has an employment agreement with the CEO of the Company for an annual base salary of $250,000, with no specified term. The CEO is also eligible on an annual basis for a cash bonus of up to 100% of annual salary. The employment agreement may be terminated with a termination payment equal to three years of base salary and a bonus equal to 20% of the annual base salary. During the years ended September 30, 2022 and September 30, 2021, the Company incurred management fees of $220,834 and $149,806, respectively, to the CEO of the Company. 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) | 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. The employment agreement may be terminated with a termination payment equal to two months of base salary. During the years ended September 30, 2022, the Company incurred salaries of $20,835 to the CFO of the Company. 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. |
Lease Liability (cont’d…)
The components of lease expense were as follows:
2021 | 2020 | |||||||
Fixed lease expense | $ | 43,932 | $ | 20,962 | ||||
Variable lease expense | 10,404 | 6,048 | ||||||
Total | $ | 54,336 | $ | 27,010 |
The following is a continuity schedule of lease liability:
2021 | 2020 | |||||||
Balance, beginning of the year | $ | 53,128 | $ | - | ||||
Addition | 57,357 | 66,432 | ||||||
Interest expense | 9,812 | 7,233 | ||||||
Lease payments | (43,932 | ) | (20,962 | ) | ||||
Foreign exchange movement | 2,584 | 425 | ||||||
Balance, end of the year | $ | 78,949 | $ | 53,128 | ||||
Current liability | $ | 51,963 | $ | 21,202 | ||||
Long-term liability | $ | 26,986 | $ | 31,926 |
During the year ended September 30, 2020, the Company issued a total of $150,000 (CAD$200,000)Included in convertible debenturesamounts due to the CEO and a director of the Company for cash (Note 6). During the year ended September 30, related parties are $nil(2021 the Company repaid $79,000 (CAD$100,000) of the convertible debenture due- $1,321) related to accrued management fee to a director of the Company together with accrued interest of $13,090. As of September 30, and $nil (2021 $78,500 (CAD$100,000) of the debenture loan remained outstanding and the interest accrued on the loan was $15,176 (2020 - $14,104).
During the year ended September 30, 2021, the Company incurred management fees of $149,806 (2020 - $144,288) to a company controlled by$131) in advances from the CEO of the Company. The Company considers this aAmounts due to related party transaction, as it relates to key management personnelparties are unsecured, non-interest bearing, and entities over which it has control or significant influence.have no specific terms of repayment.
The calculation of basic and diluted loss per share for the years ended September 30, 2022 and 2021 was based on the net losses attributable to common shareholders. The following table sets forth the computation of basic and diluted loss per share:
2022 | 2021 | |||||||
Net loss | $ | (2,714,616 | ) | $ | (1,253,242 | ) | ||
Weighted average common shares outstanding | ||||||||
Basic and diluted loss per share | $ | ) | $ | ) |
As of September 30, 2022, $73,000 (CAD$100,000) of convertible debentures convertible into common shares, (2021 - stock options and (2021 - warrants were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
12.EQUITY
Common stock
The Company has authorized an no par value. At September 30, 20212022 and 2020,September 30, 2021, the Company had 66,180,364 and 40,024,114 common shares issued and outstanding, respectively.
During the year ended September 30, 2022, the Company:
a) | Completed a non-brokered private placement of 571,760 (CAD$714,700). Each unit is comprised of one common share and one half of one share purchase warrant; each whole warrant entitles the holder to acquire one additional common share for a period of 24 months at an exercise price of $94.61 (CAD$ $202,009 of the proceeds was allocated to the warrants and recorded as a warrant liability. The Company paid $34,733 and issued agent’s warrants as a finders’ fee. The finder’s warrants have the same terms as the warrants issued under the private placement. The finder’s warrants were valued at $24,543 using the Black-Scholes option pricing model (assuming a risk-free interest rate of %, an expected life of years, annualized volatility of % and a dividend rate of %). The Company also incurred filing and other expenses of $800 in connection with the private placement. $8,671 of issuance costs related to the warrants was recorded in the statement of loss and comprehensive loss. | units at a price of $ (CAD$ per unit for gross proceeds of $|
b) | Completed a brokered private placement of 7,540,580. Each unit is comprised of one common share and one common share purchase warrant; each warrant entitles the holder to acquire one additional common share for a period of 5 years at an exercise price of $50.40. $607,170 of the proceeds was allocated to the warrants. ThinkEquity LLC acted as sole placement agent for the private placement. In connection with the private placement, ThinkEquity received a cash commission of $754,058, 19,640 broker warrants and expense reimbursement of $131,560. The broker’s warrants have the same terms as the warrants issued under the private placement. The broker’s warrants were valued at $858,429 using the Black-Scholes option pricing model (assuming a risk-free interest rate of %, an expected life of years, annualized volatility of % and a dividend rate of %). The Company also incurred filing and other expenses of $140,475 in connection with the private placement. | units at a price of $ per unit for gross proceeds of $
During the year ended September 30, 2021, the Company issued the following shares:Company:
a) | ||
b) |
There were no common shares issued during the year ended September 30, 2020.
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%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 years and vest at the discretion of the Board of Directors at the time of grant.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
12. | EQUITY (cont’d…) |
Share-based payments (cont’d…)
Stock option transactions are summarized as follows:
SCHEDULE OF STOCK OPTION TRANSACTIONS
Number of options | Weighted Average Exercise Price | Number of options | Weighted Average Exercise Price | |||||||||||||
Balance, September 30, 2019 | 2,540,189 | $ | 0.36 | |||||||||||||
Granted | 300,000 | 0.04 | ||||||||||||||
Cancelled | (500,000 | ) | 0.37 | |||||||||||||
Balance, September 30, 2020 | 2,340,189 | $ | 0.31 | 9,752 | $ | 75.00 | ||||||||||
Cancelled | (65,189 | ) | 0.40 | (272 | ) | 94.80 | ||||||||||
Balance, September 30, 2021 | 2,275,000 | $ | 0.33 | 9,480 | $ | 78.05 | ||||||||||
Granted | 13,749 | 42.04 | ||||||||||||||
Cancelled | (2,083 | ) | 69.38 | |||||||||||||
Exercisable at September 30, 2021 | 2,125,000 | $ | 0.35 | |||||||||||||
Balance, September 30, 2022 | 21,146 | $ | 53.04 | |||||||||||||
Weighted average fair value of options granted during the year | $ | nil | (2020 - $0.03 | ) | ||||||||||||
Exercisable at September 30, 2022 | 20,833 | $ | 53.68 |
The aggregate intrinsic value of options outstanding and exercisable as at September 30, 20212022 was $nil (2020$ (2021 - $nil)$ ).
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Share-based payments (cont’d…)
The options outstanding as of September 30, 2021 equalled 2,275,000 shares, and2022 have exercise prices in the range of $0.04$ to $0.39 $and a weighted average remaining contractual life of 6.60 years. The weighted average fair value of options granted during the year ended September 30, 2020 was $0.03. There were options granted during the year ended September 30, 2021.
During the years ended September 30, 20212022 and 2020,2021, the Company recognized share-based payment expense of $2,870$ and $4,175,$ , respectively, for the portion of stock options that vested during the year. The following weighted average assumptions were used for the Black-Scholes valuation of stock options granted:
2021 | 2020 | 2022 | 2021 | |||||||||||||
Risk-free interest rate | - | 0.78 | % | % | ||||||||||||
Expected life of options | - | 10 Years | Years | |||||||||||||
Expected annualized volatility | - | 120 | % | % | ||||||||||||
Dividend rate | - | Nil | ||||||||||||||
Weighted average fair value of options granted | $ | $ |
As at September 30, 2021, the following stock options were outstanding:
Number of Options | Exercise Price | Expiry Date | ||||||
1,675,000 | $ | 0.39 | December 4, 2027 | |||||
300,000 | $ | 0.24 | November 1, 2028 | |||||
300,000 | $ | 0.04 | March 16, 2030 | |||||
2,275,000 |
Warrants
Warrant transactions are summarized as follows:
Number of Warrants | Weighted Average Exercise Price | |||||||
Balance, September 30, 2019 and 2020 | 4,805,206 | $ | 0.21 | |||||
Granted | 12,500,000 | 0.16 | ||||||
Warrants expired | (4,805,206 | ) | 0.22 | |||||
Balance, September 30, 2021 | 12,500,000 | $ | 0.16 |
The 12,500,000 warrants outstanding at September 30, 2021 have an exercise price of $0.16 and expire on October 1, 2031.
F-20 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
The calculationShare-based payments (cont’d…)
SCHEDULE OF STOCK OPTIONS OUTSTANDING
Number of Options | Exercise Price | Expiry Date | ||||||
5,730 | $ | 87.60 | ||||||
1,250 | $ | 52.56 | ||||||
1,250 | $ | 8.76 | ||||||
12,916 | $ | 42.05 | ||||||
21,146 |
Warrants
Warrant transactions are summarized as follows:
SCHEDULE OF WARRANTS TRANSACTIONS
Number of Warrants | Weighted Average Exercise Price | |||||||
Balance, September 30, 2020 | 20,022 | $ | 51.10 | |||||
Granted | 52,083 | 37.92 | ||||||
Warrants expired | (20,022 | ) | (53.82 | ) | ||||
Balance, September 30, 2021 | 52,083 | $ | 37.68 | |||||
Granted | 222,193 | 52.60 | ||||||
Balance, September 30, 2022 | 274,276 | $ | 48.48 |
As September 30, 2022, the following warrants were outstanding:
SCHEDULE OF WARRANTS OUTSTANDING
Number of Warrants | Exercise Price | Expiry Date | ||||||
6,185 | $ | 94.61 | ||||||
216,008 | $ | 50.40 | ||||||
52,083 | $ | 35.04 | ||||||
274,276 |
5,515 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 basic , an expected life of years, annualized volatility of and diluted loss per share fora dividend rate of ) 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 yearsyear ended September 30, 2021 and 2020 was based on the losses attributable to common shareholders. 2022.
SCHEDULE OF VALUATION OF WARRANTS
September 30,2022 | November 4, 2021 | |||||||
Risk-free interest rate | 3.79 | % | 0.98 | % | ||||
Expected life of options | Year | Years | ||||||
Expected annualized volatility | 135.59 | % | 153.02 | % | ||||
Dividend rate | ||||||||
Weighted average fair value of options granted | $ | 1.46 | $ | 11.45 |
F-21 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
13.INCOME TAXES
SCHEDULE OF RECONCILIATION OF INCOME TAX
2022 | 2021 | |||||||
Loss before income taxes | $ | (2,714,616 | ) | $ | (1,253,242 | ) | ||
Expected income tax recovery at statutory rates | $ | (407,000 | ) | $ | (188,000 | ) | ||
Provincial income tax | (244,000 | ) | (137,000 | ) | ||||
Effect of income taxes from US operations | (42,000 | ) | (7,000 | ) | ||||
Change in statutory, foreign tax, foreign exchange rates and other | (32,000 | ) | (59,000 | ) | ||||
Permanent differences | 103,000 | 1,000 | ||||||
Adjustment to prior years provision versus statutory tax returns | (53,000 | ) | (11,000 | ) | ||||
Change in valuation allowance | 675,000 | 401,000 | ||||||
Deferred income tax recovery | $ | - | $ | - |
Components of the Company’s pre-tax loss per share:and income taxes are as follows:
SCHEDULE OF PRE TAX LOSS AND INCOME TAXES
2021 | 2020 | |||||||
Net loss | $ | (1,245,057 | ) | $ | (1,249,202 | ) | ||
Weighted average common shares outstanding | 40,737,470 | 40,024,114 | ||||||
Basic and diluted loss per share | $ | (0.03 | ) | $ | (0.03 | ) |
2022 | 2021 | |||||||
Loss for the year | ||||||||
Canada | $ | (2,030,281 | ) | $ | (1,144,350 | ) | ||
US | (684,335 | ) | (108,892 | ) | ||||
$ | (2,714,616 | ) | $ | (1,253,242 | ) | |||
Expected income tax (recovery) | ||||||||
Canada | $ | (549,000 | ) | $ | (309,000 | ) | ||
US | (102,000 | ) | (29,000 | ) | ||||
$ | (651,000 | ) | $ | (338,000 | ) | |||
Deferred income tax (recovery) | ||||||||
Canada | $ | 548,000 | $ | 309,000 | ||||
US | 103,000 | 29,000 | ||||||
$ | 651,000 | $ | 338,000 | |||||
Deferred income tax recovery | $ | - | $ | - |
As of September 30, 2021, $78,500 (CAD$100,000) of convertible debentures convertible into 666,667 common shares, 2,275,000 (2020 - 240,189) stock options and 12,500,000 (2020 - 4,805,206) warrants were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive.
A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
2021 | 2020 | |||||||
Loss before income taxes | $ | (1,245,057 | ) | $ | (1,249,202 | ) | ||
Expected income tax recovery at statutory rates | $ | (336,000 | ) | $ | (337,000 | ) | ||
Change in statutory, foreign tax, foreign exchange rates and other | (26,000 | ) | (6,000 | ) | ||||
Permanent differences | 1,000 | 2,000 | ||||||
Adjustment to prior years provision versus statutory tax returns | (11,000 | ) | (13,000 | ) | ||||
Unrecognized temporary differences | 372,000 | 354,000 | ||||||
Deferred income tax recovery | $ | - | $ | - |
The significant components of the Company’s deferred tax assets and liabilities are as follows:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
2021 | 2020 | |||||||
Non-capital losses available for future periods | $ | 780,000 | $ | 571,000 | ||||
Property and equipment | (9,000 | ) | (204,000 | ) | ||||
Financing fees | 38,000 | 70,000 | ||||||
809,000 | 437,000 | |||||||
Unrecognized deferred income tax assets | (809,000 | ) | (437,000 | ) | ||||
Net deferred income tax assets | $ | - | $ | - |
2022 | 2021 | |||||||
Tax loss carryforwards | $ | 1,342,000 | $ | 780,000 | ||||
Property and equipment | (74,000 | ) | (9,000 | ) | ||||
Financing fees | 216,000 | 38,000 | ||||||
Total gross deferred tax assets | 1,484,000 | 809,000 | ||||||
Deferred tax assets valuation allowance | (1,484,000 | ) | (809,000 | ) | ||||
Net deferred tax assets | $ | - | $ | - |
The significant components of the Company’s temporary differences include unamortized financing fees and non-capital losses available for future periods.tax loss carryforwards. The valuation allowance reduces the deferred tax assets to amounts that are, in management’s assessment, more likely than not to be realized. For the years ended September 30, 20212022 and 2020,2021, the Company had financing fees of $140,000$801,000 and $254,000,$140,000, respectively, with expiration dates between 20412042 and 2043.2047. The Company also had non-capital losses available for future periodstax loss carryforwards of approximately $4,832,000 in both Canada and the United States. For the years ended September 30, 20212022 and 2020,2021, the Canada tax losses totaled $2,703,000$4,028,000 and $1,241,000,$2,707,000, respectively, with expiration dates ranging from 2037 to 20412042 and 2037 to 2040,2041, respectively. The United States non-capitaltax losses for the years ended September 30, 2022 and 2021 totaled $804,000and 2020 totaled $213,000 and $106,000,$213,000, respectively, and had no expiration dates.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS14.SEGMENT INFORMATION
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Operating segments
The Company operates in a single reportable segment – the acquisition, development and production of oil and gas properties in the United States.
Subsequent to September 30, 2021, The Company
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
15.SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
Supplemental unaudited information regarding Permex’s oil and gas activities is presented in this note. All of Permex’s reserves are located within the U.S.
Costs Incurred in Oil and Gas Producing Activities
SCHEDULE OF COST INCURRED IN PRODUCING ACTIVITIES
12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | |||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2022 | September 30, 2021 | |||||||||||||
Acquisition of proved properties | $ | 4,612,981 | $ | — | $ | — | $ | 3,699,215 | ||||||||
Acquisition of unproved properties | — | — | — | — | ||||||||||||
Development costs | 162,498 | 254,299 | 1,676,668 | 9,403 | ||||||||||||
Exploration costs | — | — | — | — | ||||||||||||
Total costs incurred | $ | 4,775,479 | $ | 254,299 | $ | 1,676,668 | $ | 3,708,618 |
Results of Operations from Oil and Gas Producing Activities
12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | |||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2022 | September 30, 2021 | |||||||||||||
Oil and gas revenues | $ | 84,625 | $ | 682,786 | $ | 815,391 | $ | 46,703 | ||||||||
Production costs | (59,671 | ) | (557,624 | ) | (829,194 | ) | (59,671 | ) | ||||||||
Exploration expenses | — | — | — | — | ||||||||||||
Depletion, depreciation and amortization | (52,439 | ) | (28,660 | ) | (99,855 | ) | (52,439 | ) | ||||||||
Impairment of oil and gas properties | — | — | — | — | ||||||||||||
Result of oil and gas producing operations before income taxes | (27,485 | ) | 96,502 | (113,658 | ) | (65,407 | ) | |||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Results of oil and gas producing activities | $ | (27,485 | ) | $ | 96,502 | $ | (113,658 | ) | $ | (65,407 | ) |
F-23 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
15. | SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED) (cont’d…) |
Proved Reserves
The Company’s proved oil and natural gas reserves have been estimated by the certified independent engineering firm, MKM Engineering. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods when the estimates were made. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history; acquisitions of oil and natural gas properties; and changes in economic factors.
Our proved reserves are summarized in the table below:
SCHEDULE OF PROVED RESERVES
Oil (Barrels) | Natural Gas (Mcf) | BOE (Barrels) | ||||||||||
Proved developed and undeveloped reserves: | ||||||||||||
September 30, 2020 | 3,706,360 | 740,180 | 3,829,723 | |||||||||
Revisions (1) | (88,263 | ) | 38,640 | (81,823 | ) | |||||||
Purchase of proved reserves (2) | 5,408,560 | 2,859,590 | 5,885,158 | |||||||||
Sale of reserves (3) | (2,826,290 | ) | (618,650 | ) | (2,929,398 | ) | ||||||
Production | (947 | ) | (1,410 | ) | (1,182 | ) | ||||||
September 30, 2021 | 6,199,420 | 3,018,350 | 6,702,478 | |||||||||
Revisions | 48,320 | (5,613 | ) | 47,385 | ||||||||
Purchase of proved reserves | - | - | - | |||||||||
Sale reserves | - | - | - | |||||||||
Production | (10,670 | ) | (11,567 | ) | (12,598 | ) | ||||||
September 30, 2022 | 6,237,070 | 3,001,170 | 6,737,265 | |||||||||
Proved developed reserves: | ||||||||||||
September 30, 2020 | 549,390 | 82,430 | 563,128 | |||||||||
September 30, 2021 | 587,450 | 411,910 | 656,102 | |||||||||
September 30, 2022 | 1,153,870 | 864,770 | 1,297,998 | |||||||||
Proved undeveloped reserves: | ||||||||||||
September 30, 2020 | 3,156,970 | 657,750 | 3,266,595 | |||||||||
September 30, 2019 | 5,611,970 | 2,606,440 | 6,046,377 | |||||||||
September 30, 2022 | 5,083,200 | 2,136,400 | 5,439,267 |
(1) | Revisions in 2021 included 120,850 bbls in proved undeveloped reserves being reclassified as probable in the 2021 reserve report, net of other immaterial revisions in several properties. |
(2) | During 2021, the Company purchased 1,246 net acres in Martin County, Texas. |
(3) | During 2021, the Company sold ODC and Taylor properties. |
F-24 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 20212022 AND 20202021
SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED) (cont’d…) |
Our proved reserves are summarized in the table below:
Oil (Barrels) | Natural Gas (Mcf) | BOE (Barrels) | ||||||||||
Proved developed and undeveloped reserves: | ||||||||||||
September 30, 2019 | 4,778,600 | 499,540 | 4,861,857 | |||||||||
Revisions | 610,120 | 359,136 | 669,976 | |||||||||
Discoveries and extensions | — | — | — | |||||||||
Sale of reserves | (818,930 | ) | — | (818,930 | ) | |||||||
Production | (16,240 | ) | (9,196 | ) | (17,773 | ) | ||||||
September 30, 2020 | 4,553,550 | 849,480 | 4,695,130 | |||||||||
Revisions | 94,088 | 38,650 | 100,530 | |||||||||
Purchase of proved reserves | 6,465,250 | 3,441,990 | 7,038,915 | |||||||||
Sale reserves | (3,069,240 | ) | (727,960 | ) | (3,190,567 | ) | ||||||
Production | (2,128 | ) | (1,410 | ) | (2,363 | ) | ||||||
September 30, 2021 | 8,041,520 | 3,600,750 | 8,641,645 | |||||||||
Proved developed reserves: | ||||||||||||
September 30, 2019 | 923,550 | 104,620 | 940,987 | |||||||||
September 30, 2020 | 549,380 | 82,400 | 563,113 | |||||||||
September 30, 2021 | 587,660 | 412,180 | 656,357 | |||||||||
Proved undeveloped reserves: | ||||||||||||
September 30, 2019 | 3,855,050 | 394,920 | 3,920,870 | |||||||||
September 30, 2020 | 4,004,170 | 767,080 | 4,132,017 | |||||||||
September 30, 2021 | 7,453,860 | 3,188,570 | 7,985,288 |
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following information is based on the Company’s best estimate of the required data for the Standardized Measure of Discounted Future Net Cash Flows as of September 30, 20212022 and September 30, 20202021 in accordance with ASC 932, “Extractive Activities – Oil and Gas” which requires the use of a 10% discount rate. This information is not the fair market value, nor does it represent the expected present value of future cash flows of the Company’s proved oil and gas reserves.
Future cash inflows for the years ended September 30, 20212022 and September 30, 20202021 were estimated as specified by the SEC through calculation of an average price based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for the period from October through September during each respective fiscal year. The resulting net cash flow are reduced to present value by applying a 10% discount factor.
SCHEDULE OF NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
September 30, 2022 | September 30, 2021 | |||||||
12 Months Ended | ||||||||
September 30, 2022 | September 30, 2021 | |||||||
Future cash inflows | $ | 589,481,000 | $ | 355,958,000 | ||||
Future production costs(1) | (91,630,000 | ) | (69,683,000 | ) | ||||
Future development costs | (71,700,000 | ) | (71,700,000 | ) | ||||
Future income tax expenses | (113,873,000 | ) | (57,206,000 | ) | ||||
Future net cash flows | 312,278,000 | 157,369,000 | ||||||
10% annual discount for estimated timing of cash flows | (167,549,000 | ) | (84,100,000 | ) | ||||
Standardized measure of discounted future net cash flows at the end of the fiscal year | $ | 144,729,000 | $ | 73,269,000 |
12 Months Ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
Future cash inflows | $ | 457,906,000 | $ | 184,820,000 | ||||
Future production costs(1) | (95,352,000 | ) | (62,004,000 | |||||
Future development costs | (116,945,000 | ) | (47,250,000 | |||||
Future income tax expenses | (65,586,000 | ) | (20,068,000 | |||||
Future net cash flows | 180,024,000 | 55,498,000 | ||||||
10% annual discount for estimated timing of cash flows | (106,943,000 | ) | (35,645,000 | |||||
Standardized measure of discounted future net cash flows at the end of the fiscal year | $ | 73,080,000 | $ | 19,853,000 |
(1) | Production costs include crude oil and natural gas operations expense, production ad valorem taxes, transportation costs and G&A expense supporting the Company’s crude oil and natural gas operations. |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2021 AND 2020
Average hydrocarbon prices are set forth in the table below.
SCHEDULE OF AVERAGE HYDROCARBON PRICES
Average Price | Natural | |||||||
Crude Oil (Bbl) | Gas (Mcf) | |||||||
Year ended September 30, 2020 (1) | $ | 40.30 | $ | 1.77 | ||||
Year ended September 30, 2021 (1) | $ | 55.98 | $ | 2.95 | ||||
Year ended September 30, 2022 (1) | $ | 91.72 | $ | 5.79 |
Average Price | Natural | |||||||
Crude Oil (Bbl) | Gas (Mcf) | |||||||
Year ended September 30, 2019 (1) | $ | 73.84 | $ | 3.29 | ||||
Year ended September 30, 2020 (1) | $ | 40.26 | $ | 1.78 | ||||
Year ended September 30, 2021 (1) | $ | 55.62 | $ | 2.95 |
(1) | Average prices were based on 12-month unweighted arithmetic average of the first-day-of-the-month prices for the period from October through September during each respective fiscal year. |
Future production and development costs, which include dismantlement and restoration expense, are computed by estimating the expenditures to be incurred in developing and producing the Company’s proved crude oil and natural gas reserves at the end of the year, based on year-end costs, and assuming continuation of existing economic conditions.
F-25 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2022 AND 2021
15. | SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED) (cont’d…) |
Sources of Changes in Discounted Future Net Cash Flows
Principal changes in the aggregate standardized measure of discounted future net cash flows attributable to the Company’s proved crude oil and natural gas reserves, as required by ASC 932, at fiscal year-end are set forth in the table below.
SCHEDULE OF CHANGES IN DISCOUNTED FUTURE NET CASH FLOWS
September 30, 2022 | September 30, 2021 | |||||||
12 Months Ended | ||||||||
September 30, 2022 | September 30, 2021 | |||||||
Standardized measure of discounted future net cash flows at the beginning of the year | $ | 73,269,000 | $ | 20,797,000 | ||||
Extensions, discoveries and improved recovery, less related costs | — | — | ||||||
Sales of minerals in place | — | (62,682,000 | ) | |||||
Purchase of minerals in place | — | 125,927,000 | ||||||
Revisions of previous quantity estimates | 1,674,000 | (1,751,000 | ) | |||||
Net changes in prices and production costs | 88,333,000 | 32,573,000 | ||||||
Accretion of discount | 10,077,000 | 1,498,000 | ||||||
Sales of oil produced, net of production costs | (49,000 | ) | 13,000 | |||||
Changes in future development costs | 911,000 | (21,339,000 | ) | |||||
Changes in timing of future production | (3,099,000 | ) | (2,580,000 | ) | ||||
Net changes in income taxes | (26,387,000 | ) | (19,187,000 | ) | ||||
Standardized measure of discounted future net cash flows at the end of the year | $ | 144,729,000 | $ | 73,269,000 |
12 Months Ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
Standardized measure of discounted future net cash flows at the beginning of the year | $ | 19,853,000 | $ | 53,544,000 | ||||
Extensions, discoveries and improved recovery, less related costs | — | — | ||||||
Purchase and sales of minerals in place, net | 66,077,000 | (7,891,000 | ||||||
Revisions of previous quantity estimates | 1,726,000 | 6,456,000 | ||||||
Net changes in prices and production costs | 30,337,000 | (49,924,000 | ||||||
Accretion of discount | 2,784,000 | 7,492,000 | ||||||
Sales of oil produced, net of production costs | 13,000 | (125,000 | ||||||
Changes in future development costs | (28,523,000 | ) | 2,562,000 | |||||
Changes in timing of future production | 267,000 | (5,656,000 | ||||||
Net changes in income taxes | (19,454,000 | ) | 13,395,000 | |||||
Standardized measure of discounted future net cash flows at the end of the year | $ | 73,080,000 | $ | 19,853,000 |
F-26 |
PERMEX PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2023 | September 30, 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 764,386 | $ | 3,300,495 | ||||
Trade and other receivables, net | 96,615 | 137,214 | ||||||
Prepaid expenses and deposits | 136,400 | 317,277 | ||||||
Total current assets | 997,401 | 3,754,986 | ||||||
Non-current assets | ||||||||
Reclamation deposits | 145,000 | 145,000 | ||||||
Property and equipment, net of accumulated depreciation and depletion | 10,368,436 | 8,426,776 | ||||||
Right of use asset, net | 166,960 | 240,796 | ||||||
Total assets | $ | 11,677,797 | $ | 12,567,558 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Trade and other payables | $ | 3,419,106 | $ | 1,561,344 | ||||
Convertible debenture | - | 38,291 | ||||||
Lease liability – current portion | 79,866 | 104,224 | ||||||
Total current liabilities | 3,498,972 | 1,703,859 | ||||||
Non-current liabilities | ||||||||
Asset retirement obligations | 260,394 | 236,412 | ||||||
Lease liability, less current portion | 97,023 | 140,682 | ||||||
Warrant liability | - | 23,500 | ||||||
Total liabilities | 3,856,389 | 2,104,453 | ||||||
Equity | ||||||||
Common stock, no par value per share; shares authorized, and shares* issued and outstanding as of June 30, 2023 and September 30, 2022, respectively. | 14,989,912 | 14,337,739 | ||||||
Additional paid-in capital | 5,092,665 | 4,513,194 | ||||||
Accumulated other comprehensive loss | (127,413 | ) | (127,413 | ) | ||||
Accumulated deficit | (12,133,756 | ) | (8,260,415 | ) | ||||
Total equity | 7,821,408 | 10,463,105 | ||||||
Total liabilities and equity | $ | 11,677,797 | $ | 12,567,558 |
March 31, 2022 | September 30, 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 6,727,758 | $ | 25,806 | ||||
Trade and other receivables | 146,403 | 12,984 | ||||||
Prepaid expenses and deposits | 81,236 | 46,151 | ||||||
6,955,397 | 84,941 | |||||||
Non-current assets | ||||||||
Reclamation deposits | 145,000 | 144,847 | ||||||
Property and equipment | 7,967,249 | 7,846,145 | ||||||
Right of use asset | 49,736 | 72,539 | ||||||
Total assets | $ | 15,117,382 | $ | 8,148,472 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Trade and other payables | $ | 581,772 | $ | 402,979 | ||||
Amounts due to related party | 2,290 | 16,628 | ||||||
Convertible debentures | 80,000 | 78,500 | ||||||
Lease liability – current portion | 47,559 | 51,963 | ||||||
711,621 | 550,070 | |||||||
Non-current liabilities | ||||||||
Decommissioning obligations | 1,655,428 | 1,627,465 | ||||||
Lease liability | 8,414 | 26,986 | ||||||
Loan payable | 32,000 | 31,400 | ||||||
Total liabilities | 2,407,463 | 2,235,921 | ||||||
Equity | ||||||||
Common stock, no par value per share; unlimited shares authorized, | ||||||||
115,956,026 and 66,180,364 shares issued and outstanding | ||||||||
as of March 31, 2022 and September 30, 2021, respectively. | 14,399,373 | 8,976,747 | ||||||
Share subscription proceeds | 30,456 | 30,456 | ||||||
Reserves | 4,585,413 | 2,352,649 | ||||||
Accumulated other comprehensive loss | (18,845 | ) | (128,532 | ) | ||||
Deficit | (6,286,478 | ) | (5,318,769 | ) | ||||
Total equity | 12,709,919 | 5,912,551 | ||||||
Total liabilities and equity | $ | 15,117,382 | $ | 8,148,472 |
The financial statements were authorized for issue by the board of directors on July 14, 2022 and were signed on its behalf by:
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
F-27 |
PERMEX PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||||||||
Revenues | ||||||||||||||||
Oil and gas sales | $ | 156,716 | $ | 258,757 | $ | 541,459 | $ | 577,244 | ||||||||
Royalty income | 303 | 17,965 | 18,140 | 47,813 | ||||||||||||
Total revenues | 157,019 | 276,722 | 559,599 | 625,057 | ||||||||||||
Operating expenses | ||||||||||||||||
Lease operating expense | 235,511 | 135,467 | 762,668 | 332,346 | ||||||||||||
General and administrative | 788,659 | 1,053,070 | 3,014,307 | 2,067,042 | ||||||||||||
Depletion and depreciation | 37,286 | 73,093 | 120,459 | 161,988 | ||||||||||||
Accretion on asset retirement obligations | 7,994 | 8,238 | 23,982 | 24,714 | ||||||||||||
Foreign exchange gain (loss) | 3,310 | (22,337 | ) | 7,690 | (13,723 | ) | ||||||||||
Total operating expenses | (1,072,760 | ) | (1,247,531 | ) | (3,929,106 | ) | (2,572,367 | ) | ||||||||
Loss from operations | (915,741 | ) | (970,809 | ) | (3,369,507 | ) | (1,947,310 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest income | 108 | - | 108 | 2 | ||||||||||||
Other income | 6,000 | 4,000 | 18,000 | 16,000 | ||||||||||||
Forgiveness of loan payable | - | 7,900 | - | 7,900 | ||||||||||||
Finance expense | (1,026 | ) | (2,598 | ) | (2,208 | ) | (27,246 | ) | ||||||||
Gain on settlement of warrant liability | 930 | - | 930 | - | ||||||||||||
Change in fair value of warrant liability | 136 | 72,838 | 22,570 | 152,869 | ||||||||||||
Total other income | 6,148 | 82,140 | 39,400 | 149,525 | ||||||||||||
Net loss and comprehensive loss | $ | (909,593 | ) | $ | (888,669 | ) | $ | (3,330,107 | ) | $ | (1,797,785 | ) | ||||
Deemed dividend arising from warrant modification | (543,234 | ) | - | (543,234 | ) | - | ||||||||||
Net loss attributable to common stockholders | $ | (1,452,827 | ) | $ | (888,669 | ) | $ | (3,873,341 | ) | $ | (1,797,785 | ) | ||||
Basic and diluted loss per common share | $ | (2.96 | ) | $ | (1.84 | ) | $ | (7.97 | ) | $ | (5.09 | ) | ||||
Loss per common share, basic | $ | (2.96 | ) | $ | (1.84 | ) | $ | (7.97 | ) | $ | (5.09 | ) | ||||
Weighted average number of common shares outstanding* | 491,037 | 483,150 | 485,779 | 352,934 | ||||||||||||
Weighted average number of common shares outstanding, basic | 491,037 | 483,150 | 485,779 | 352,934 |
* | The number of shares has been restated to reflect the 60:1 reverse stock spliteffective on November 2, 2022 and the 4:1 reverse stock spliteffective on October 23, 2023 (Note 1) |
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | |||||||||||||
Revenue | ||||||||||||||||
Oil and gas sales | $ | 228,497 | $ | 40 | $ | 318,487 | $ | 3,094 | ||||||||
Royalty income | 13,389 | - | 29,848 | - | ||||||||||||
Total revenue | 241,886 | 40 | 348,335 | 3,094 | ||||||||||||
Expenses | ||||||||||||||||
Producing | 115,000 | 9,949 | 196,879 | 10,213 | ||||||||||||
Accounting and audit | 51,280 | 18,397 | 65,480 | 29,947 | ||||||||||||
Accretion on decommissioning obligations | 8,223 | 2,931 | 16,476 | 5,805 | ||||||||||||
Consulting | 3,151 | 10,095 | 16,773 | 13,903 | ||||||||||||
Depletion and depreciation | 56,884 | 2,077 | 88,895 | 9,238 | ||||||||||||
Filing and transfer agent | 13,856 | 27,924 | 39,825 | 34,360 | ||||||||||||
Interest | 1,286 | 5,110 | 3,688 | 9,768 | ||||||||||||
Investor relations | 18,266 | 1,351 | 41,733 | 2,406 | ||||||||||||
Legal fees | 18,435 | - | 23,826 | 670 | ||||||||||||
Management fees | 59,393 | 37,513 | 109,773 | 75,116 | ||||||||||||
Marketing and promotion | 18,366 | 12,257 | 48,818 | 20,654 | ||||||||||||
Office and general | 10,188 | 6,024 | 30,223 | 10,658 | ||||||||||||
Rent | 18,434 | 10,471 | 33,518 | 20,136 | ||||||||||||
Share-based payments | (2,649 | ) | 915 | 604,676 | 1,915 | |||||||||||
Travel | 1,119 | 453 | 4,918 | 872 | ||||||||||||
Total operating expenses | (391,232 | ) | (145,467 | ) | (1,325,501 | ) | (245,660 | ) | ||||||||
Operating loss | (149,346 | ) | (145,427 | ) | (977,166 | ) | (242,566 | ) | ||||||||
Foreign exchange loss | (13,081 | ) | (10,476 | ) | (8,135 | ) | (27,152 | ) | ||||||||
Forfeiture of reclamation deposit | - | (50,483 | ) | - | (50,483 | ) | ||||||||||
Other income | 17,483 | 2,645 | 17,592 | 5,128 | ||||||||||||
Settlement of trade payables | - | 7,718 | - | 7,718 | ||||||||||||
4,402 | (50,596 | ) | 9,457 | (64,789 | ) | |||||||||||
Net loss | (144,944 | ) | (196,023 | ) | (967,709 | ) | (307,356 | ) | ||||||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation adjustment | 82,825 | 40,389 | 109,687 | 196,182 | ||||||||||||
Comprehensive loss | $ | (62,119 | ) | $ | (155,634 | ) | $ | (858,022 | ) | $ | (111,173 | ) | ||||
Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
F-28 |
PERMEX PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Three months ended March 31June 30
Number of Shares | Share capital | Reserves | Share subscription proceeds | Accumulated other comprehensive loss | Deficit | Total equity | ||||||||||||||||||||||
Balance, December 31, 2021 | 68,827,401 | $ | 9,350,485 | $ | 3,122,463 | $ | 30,456 | $ | (101,670 | ) | $ | (6,141,525 | ) | $ | 6,260,209 | |||||||||||||
Private placements | 47,128,625 | 6,933,410 | 607,170 | - | - | - | 7,540,580 | |||||||||||||||||||||
Share issuance costs | - | (1,884,522 | ) | 858,429 | - | - | - | (1,026,093 | ) | |||||||||||||||||||
Share-based payments | - | - | (2,649 | ) | - | - | - | (2,649 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (144,953 | ) | (144,953 | ) | |||||||||||||||||||
Other comprehensive income | - | - | - | - | 82,825 | - | 82,825 | |||||||||||||||||||||
Balance, March 31, 2022 | 115,956,026 | $ | 14,399,373 | $ | 4,585,413 | $ | 30,456 | $ | (18,845 | ) | $ | (6,286,478 | ) | $ | 12,709,919 |
Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated 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 | ) | - | |||||||||||||||||
Share-based payments | - | - | - | - | - | - | ||||||||||||||||||
Net loss | - | - | - | - | (909,593 | ) | (909,593 | ) | ||||||||||||||||
Balance, June 30, 2023 | 551,503 | $ | 14,989,912 | $ | 5,092,665 | $ | (127,413 | ) | $ | (12,133,756 | ) | $ | 7,821,408 |
Number of Shares | Share capital | Reserves | Share subscription proceeds | Accumulated other comprehensive loss | Deficit | Total equity | ||||||||||||||||||||||
Balance, December 31, 2020 | 40,680,364 | $ | 6,473,147 | $ | 1,193,123 | $ | 30,465 | $ | (114,074 | ) | $ | (4,208,107 | ) | $ | 3,374,545 | |||||||||||||
Share-based payments | - | - | 915 | - | - | - | 915 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (196,023 | ) | (196,023 | ) | |||||||||||||||||||
Other comprehensive income | - | - | - | - | 40,389 | - | 40,389 | |||||||||||||||||||||
Balance, March 31, 2021 | 40,680,364 | $ | 6,473,147 | $ | 1,194,038 | $ | 30,456 | $ | (73,685 | ) | $ | (4,404,130 | ) | $ | 3,219,826 |
Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total equity | |||||||||||||||||||
Balance, March 31, 2022 | 483,150 | $ | 14,356,535 | $ | 4,571,535 | $ | (127,413 | ) | $ | (6,454,915 | ) | $ | 12,345,742 | |||||||||||
Share issuance costs | - | (18,302 | ) | - | - | - | (18,302 | ) | ||||||||||||||||
Share-based payments | - | - | 185 | - | - | 185 | ||||||||||||||||||
Net loss | - | - | - | - | (888,669 | ) | (888,669 | ) | ||||||||||||||||
Balance, June 30, 2022 | 483,150 | $ | 14,338,233 | $ | 4,571,720 | $ | (127,413 | ) | $ | (7,343,584 | ) | $ | 11,438,956 |
* | The number of shares has been restated to reflect the 60:1 reverse stock spliteffective on November 2, 2022 and the 4:1 reverse stock spliteffective on October 23, 2023 (Note 1) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
F-29 |
PERMEX PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF EQUITY (cont’d…)
(UNAUDITED)
SixNine months ended March 31June 30
Number of Shares | Share capital | Reserves | Share subscription proceeds | Accumulated other comprehensive loss | Deficit | Total equity | ||||||||||||||||||||||
Balance, September 30, 2021 | 66,180,364 | $ | 8,976,747 | $ | 2,352,649 | $ | 30,456 | $ | (128,532 | ) | $ | (5,318,769 | ) | $ | 5,912,551 | |||||||||||||
Private placements | 49,775,662 | 7,367,224 | 745,116 | - | - | - | 8,112,340 | |||||||||||||||||||||
Share issuance costs | - | (1,944,598 | ) | 882,972 | - | - | - | (1,061,626 | ) | |||||||||||||||||||
Share-based payments | - | - | 604,676 | - | - | - | 604,676 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (967,709 | ) | (967,709 | ) | |||||||||||||||||||
Other comprehensive income | - | - | - | - | 109,687 | - | 109,687 | |||||||||||||||||||||
Balance, March 31, 2022 | 115,956,026 | $ | 14,399,373 | $ | 4,585,413 | $ | 30,456 | $ | (18,845 | ) | $ | (6,286,478 | ) | $ | 12,709,919 |
Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated 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 | ) | - | |||||||||||||||||
Share-based payments | - | - | 318 | - | - | 318 | ||||||||||||||||||
Net loss | - | - | - | - | (3,330,107 | ) | (3,330,107 | ) | ||||||||||||||||
Balance, June 30, 2023 | 551,503 | $ | 14,989,912 | $ | 5,092,665 | $ | (127,413 | ) | $ | (12,133,756 | ) | $ | 7,821,408 |
Number of Shares | Share capital | Reserves | Share subscription proceeds | Accumulated other comprehensive loss | Deficit | Total equity | ||||||||||||||||||||||
Balance, September 30, 2020 | 40,024,114 | $ | 6,453,039 | $ | 1,192,123 | $ | 30,456 | $ | (270,235 | ) | $ | (4,096,774 | ) | $ | 3,308,609 | |||||||||||||
Shares issued for services | 656,250 | 20,108 | - | - | - | - | 20,108 | |||||||||||||||||||||
Share-based payments | - | - | 1,915 | - | - | - | 1,915 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (307,356 | ) | (307,356 | ) | |||||||||||||||||||
Other comprehensive income | - | - | - | - | 196,550 | - | 196,550 | |||||||||||||||||||||
Balance, March 31, 2021 | 40,680,364 | $ | 6,473,147 | $ | 1,194,038 | $ | 30,456 | $ | (73,685 | ) | $ | (4,404,130 | ) | $ | 3,219,826 |
Number of Shares* | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total equity | |||||||||||||||||||
Balance, September 30, 2021 | 275,752 | $ | 8,976,747 | $ | 2,476,717 | $ | (127,413 | ) | $ | (5,545,799 | ) | $ | 5,780,252 | |||||||||||
Balance | 275,752 | $ | 8,976,747 | $ | 2,476,717 | $ | (127,413 | ) | $ | (5,545,799 | ) | $ | 5,780,252 | |||||||||||
Private placements | 207,398 | 7,303,161 | 607,170 | - | - | 7,910,331 | ||||||||||||||||||
Share issuance costs | - | (1,941,675 | ) | 882,972 | - | - | (1,058,703 | ) | ||||||||||||||||
Share-based payments | - | - | 604,861 | - | - | 604,861 | ||||||||||||||||||
Net loss | - | - | - | - | (1,797,785 | ) | (1,797,785 | ) | ||||||||||||||||
Balance, June 30, 2022 | 483,150 | $ | 14,338,233 | $ | 4,571,720 | $ | (127,413 | ) | $ | (7,343,584 | ) | $ | 11,438,956 | |||||||||||
Balance | 483,150 | $ | 14,338,233 | $ | 4,571,720 | $ | (127,413 | ) | $ | (7,343,584 | ) | $ | 11,438,956 |
* | The number of shares has been restated to reflect the 60:1 reverse stock spliteffective on November 2, 2022 and the 4:1 reverse stock spliteffective on October 23, 2023 (Note 1). |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
F-30 |
PERMEX PETROLEUM CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
SIXNINE MONTHS ENDED MARCH 31JUNE 30
(UNAUDITED)
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (3,330,107 | ) | $ | (1,797,785 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Accretion on asset retirement obligations | 23,982 | 24,714 | ||||||
Depletion and depreciation | 120,459 | 161,988 | ||||||
Foreign exchange loss (gain) | - | (1,062 | ) | |||||
Forgiveness of loan payable | - | (7,900 | ) | |||||
Finance expense | - | 14,956 | ||||||
Gain on settlement of warrant liability | (930 | ) | - | |||||
Change in fair value of warrant liability | (22,570 | ) | (152,869 | ) | ||||
Share-based payments | 318 | 604,861 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade and other receivables | 40,599 | (173,756 | ) | |||||
Prepaid expenses and deposits | 180,877 | (831,968 | ) | |||||
Trade and other payables | 1,045,347 | 695,431 | ||||||
Amounts due to related parties | - | (10,618 | ) | |||||
Right of use asset and lease liability | 5,819 | (930 | ) | |||||
Net cash used in operating activities | (1,936,206 | ) | (1,474,938 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital expenditures on property and equipment | (1,249,704 | ) | (201,698 | ) | ||||
Net cash used in investing activities | (1,249,704 | ) | (201,698 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of private placement units | - | 8,112,340 | ||||||
Proceeds from exercise of warrants | 781,953 | - | ||||||
Share issuance costs | (93,861 | ) | (1,067,374 | ) | ||||
Convertible debenture repayment | (38,291 | ) | (23,700 | ) | ||||
Loan from related party | - | (3,647 | ) | |||||
Net cash provided by (used in) financing activities | 649,801 | 7,017,619 | ||||||
Change in cash and cash equivalents during the period | (2,536,109 | ) | 5,340,983 | |||||
Cash and cash equivalents, beginning of the period | 3,300,495 | 25,806 | ||||||
Cash and cash equivalents, end of the period | $ | 764,386 | $ | 5,366,789 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Share purchase warrants issued in connection with private placements | - | 1,692,151 | ||||||
Share purchase warrants issued in connection with exercise of warrants | 579,153 | - | ||||||
Trade and other payables related to property and equipment | 1,459,667 | 93,960 | ||||||
Supplemental cash flow disclosures: | ||||||||
Interest paid | 1,182 | 18,960 |
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (967,709 | ) | $ | (307,356 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Accretion on decommissioning obligations | 16,476 | 5,805 | ||||||
Depletion and depreciation | 88,895 | 9,238 | ||||||
Foreign exchange loss | 9,873 | 87,814 | ||||||
Forfeiture of reclamation bond | - | 49,530 | ||||||
Interest | 3,688 | 8,642 | ||||||
Settlement of trade payables | - | (7,572 | ) | |||||
Share-based payments | 604,676 | 1,915 | ||||||
Shares issued for services | - | 16,696 | ||||||
Trade and other receivables | (133,289 | ) | 43,009 | |||||
Prepaid expenses and deposits | (33,877 | ) | (19,013 | ) | ||||
Trade and other payables | 171,583 | (286,934 | ) | |||||
Amounts due to related parties | (18,960 | ) | (162,477 | ) | ||||
Right of use asset and lease liability | 27,513 | 17,917 | ||||||
Net cash used in operating activities | (231,131 | ) | (542,786 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital expenditures on property and equipment | (90,657 | ) | (195,419 | ) | ||||
Proceeds from sale of oil and gas interests | - | 1,123,244 | ||||||
Net cash provided by (used in) investing activities | (90,657 | ) | 927,825 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of share capital | 8,112,340 | - | ||||||
Share issuance costs | (1,061,626 | ) | - | |||||
Convertible debentures | - | (2,730 | ) | |||||
Loan from related party | 800 | (78,000 | ) | |||||
Lease payments | (27,774 | ) | (16,389 | ) | ||||
Net cash provided by (used in) financing activities | 7,023,740 | (97,119 | ) | |||||
Change in cash during the period | 6,701,952 | 287,920 | ||||||
Cash, beginning of the period | 25,806 | 5,517 | ||||||
Cash, end of the period | $ | 6,727,758 | $ | 293,437 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Trade and other payables related to property and equipment | $ | 82,054 | $ | 76,855 | ||||
Share issued for services included in prepaid | - | 3,413 | ||||||
Share purchase warrants issued in connection with private placement | 1,628,088 | - | ||||||
Supplemental cash flow disclosures: | ||||||||
Interest paid | 18,960 | - |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
F-31 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE AND NINE MONTHS ENDED MARCH 31, 2022JUNE 30, 2023
(UNAUDITED)
1. BACKGROUND
Permex Petroleum Corporation (the “Company”) was incorporated on April 24, 2017under the laws of British Columbia, Canada and maintains its head office at Suite 500, 666 Burrard Street, Vancouver, British Columbia, Canada, V6C 2X8 and its US office at Suite 700, 100 Crescent Court,925, 2911 Turtle Creek Blvd, Dallas, Texas, 75201.75219. Its registered office is located at 10thfloor, 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” and on the OTCQB under the symbol “OILCF”“OILCD”.
On October 26, 2022, the Company’s board of directors approved a reverse stock split of the Company’s issued and outstanding common stock at a 1 for 60 ratio, which was effective November 2, 2022. The par value and authorized shares of common stock were not adjusted as a result of the reverse stock split. 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 split 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, 20222023 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 notes thereto included in the Company’s Form S-1footnotes for the fiscal year ended September 30, 2021 filed with the SEC on June 24, 2022. There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the fiscal 2021 financial statements, except as noted below.
Principles of Consolidation
The accompanying consolidated financial statements include the assets, liabilities, revenue and expenses of allthe Company’s wholly-owned subsidiaries.subsidiary, Permex Petroleum US Corporation. All intercompany balances and transactions have been eliminated.
F-32 |
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(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 $12,133,756 and has not yet achieved profitable operations. The Company has been relying on equity financing and loans from related parties to fund its operation in the past. While the Company has been successful in securing financing to date, 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.
Management plans to fund operations of the Company with its current working capital and through increasing production from its oil and gas leases. The Company also expects to raise additional funds through equity 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. Management believes that this plan provides an opportunity for the Company to continue as a going concern.
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) amounts subject to allowances and returns; (ii) the fair value of assets when determining the existence of impairment factors and the amount of impairment, if any; (iii)(ii) the costs of site restoration when determining decommissioning liabilities; (iv) income taxes receivable or payable; (v)(iii) the useful lives of assets for the purposes of depletion and depreciation; (vi)(iv) petroleum and natural gas reserves; and (vii)(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
There are not currently any new or pending accounting standards that are expected to have a significant impact on the Company’s consolidated financial statements.
F-33 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE AND NINE MONTHS ENDED MARCH 31, 2022JUNE 30, 2023
(UNAUDITED)
3. REVENUE
Foreign Currency
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Permex Petroleum US Corporation. These consolidated financial statements areRevenue from contracts with customers is presented in United States dollars (“USD”). “Oil and gas sales” on the Consolidated Statements of Loss.
As of June 30, 2023 and September 30, 2022, receivable from contracts with customers, included in trade and other receivables, were $52,201 and $56,639, respectively.
The functional currencyfollowing table present our revenue from contracts with customers disaggregated by product type and geographic areas.
SCHEDULE OF REVENUE DISAGGREGATED BY PRODUCT TYPE AND GEOGRAPHIC AREAS
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 |
Three months ended June 30, 2022 | Texas | New Mexico | Total | |||||||||
Crude oil | $ | 205,861 | $ | 36,562 | $ | 242,423 | ||||||
Natural gas | 16,334 | - | 16,334 | |||||||||
Revenue | $ | 222,195 | $ | 36,562 | $ | 258,757 |
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 |
Nine months ended June 30, 2022 | Texas | New Mexico | Total | |||||||||
Crude oil | $ | 445,769 | $ | 84,809 | $ | 530,578 | ||||||
Natural gas | 46,666 | - | 46,666 | |||||||||
Revenue | $ | 492,435 | $ | 84,809 | $ | 577,244 |
4. CONCENTRATION OF CREDIT RISK
The Company’s financial instruments that are exposed to concentrations of the Company is the Canadian dollar (“CAD”). The functional currency for the subsidiarycredit risk consist primarily of the Company is the United States dollar (“USD”).
Recently adopted accounting pronouncement
None.
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.
DuringThe majority of the six months ended March 31,Company’s receivable balance is concentrated in trade receivables, with a balance of $94,380 as of June 30, 2023 (September 30, 2022 the Company generated 75% of total revenue from one customer (2021 - 100%$91,928). As at March 31, 2022, one customerTwo customers represented $55,255 (40%$57,744 (61%) of the trade receivable balance. The Company routinely assesses the financial strength of its customers. The non-trade receivable balance (September 30, 2021 - $2,927 (26%consists of goods and services tax (“GST”)) recoverable of $2,235. GST recoverable is due from the Canadian Government. It is in management’s opinion that the Company is not exposed to significant credit risk. To date, the Company has not recognized any credit losses on its receivables.
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
June 30, 2023 | September 30, 2022 | |||||||
Oil and natural gas properties, at cost | $ | 10,473,886 | $ | 8,029,234 | ||||
Construction in progress | - | 460,306 | ||||||
Less: accumulated depletion | (267,941 | ) | (184,658 | ) | ||||
Oil and natural gas properties, net | 10,205,945 | 8,304,882 | ||||||
Other property and equipment, at cost | 205,315 | 127,542 | ||||||
Less: accumulated depreciation | (42,824 | ) | (5,648 | ) | ||||
Other property and equipment, net | 162,491 | 121,894 | ||||||
Property and equipment, net | $ | 10,368,436 | $ | 8,426,776 |
Depletion and depreciation expense was $120,459 and $161,988 for the nine month periods ended June 30, 2023 and June 30, 2022, respectively. Depletion and depreciation expense for the three month periods ended June 30, 2023 and June 30, 2022 was $37,286 and $73,093, respectively.
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:
SCHEDULE OF RIGHT OF USE OPERATING LEASES
June 30, 2023 | September 30, 2022 | |||||||
Right-of-use assets | $ | 166,960 | $ | 240,796 | ||||
Lease liabilities | ||||||||
Balance, beginning of the year | $ | 244,906 | $ | 78,949 | ||||
Addition | - | 220,368 | ||||||
Liability accretion | 19,111 | 9,042 | ||||||
Lease payments | (87,128 | ) | (63,453 | ) | ||||
Balance, end of the year | $ | 176,889 | $ | 244,906 | ||||
Current lease liabilities | $ | 79,866 | $ | 104,224 | ||||
Long-term lease liabilities | $ | 97,023 | $ | 140,682 |
The Company is engaged infollowing table presents the exploration for,Company’s total lease cost.
SCHEDULE OF LEASE COST
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||||||||
Operating lease cost | $ | 27,704 | $ | 12,956 | $ | 92,947 | $ | 40,730 | ||||||||
Variable lease expense | 22,516 | 13,397 | 48,513 | 30,823 | ||||||||||||
Sublease income | (12,367 | ) | (10,752 | ) | (32,762 | ) | (26,350 | ) | ||||||||
Rent subsidy | - | - | - | (1,674 | ) | |||||||||||
Net lease cost | $ | 37,853 | $ | 15,601 | $ | 108,698 | $ | 43,529 |
As of June 30, 2023, maturities of the Company’s operating lease liabilities are as follows:
SCHEDULE OF FUTURE LEASE PAYMENTS
Year | ||||
2023 remaining | $ | 23,709 | ||
2024 | 82,190 | |||
2025 | 84,664 | |||
2026 | 14,180 | |||
Total lease payments | 204,743 | |||
Less: imputed interest | (27,854 | ) | ||
Total lease liabilities | $ | 176,889 |
F-35 |
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(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 development of, petroleum and natural gas projects in the United States. The Company holds 100% working interests and 71.9% to 81.75% net revenue interests and certain royalty interests in the variousCompany’s oil and gas properties locatedproperties. Changes to the asset retirement obligations are as follows:
SCHEDULE OF ASSET RETIREMENT OBLIGATIONS
June 30, 2023 | September 30, 2022 | |||||||
Asset retirement obligations, beginning of the year | $ | 236,412 | $ | 552,594 | ||||
Revisions of estimates | - | (371,212 | ) | |||||
Accretion expense | 23,982 | 55,030 | ||||||
Asset retirement obligations, ending of the year | $ | 260,394 | $ | 236,412 |
During the year ended September 30, 2022, the Company had revision of estimates totalling $371,212 primarily due to changes in Texasfuture cost estimates and New Mexico.retirement dates for its oil and gas assets.
Reclamation bondsdeposits
As of March 31, 2022,June 30, 2023, the Company held reclamation bondsdeposits of $145,000$145,000 (September 30, 20212022 - $144,847)$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 year ended
F-36 |
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
8. DEBT
Convertible debenture – Related party
As of September 30, 2021,2022, the Company wrote off US$50,165had a debenture loan of reclamation deposit forfeited by the Texas State government due to violation on a previous owned property.
Property and equipment
Property and equipment consisted of the following:
March 31, 2022 | September 30, 2021 | |||||||
Oil and natural gas properties, at cost | $ | 8,166,294 | $ | 7,954,807 | ||||
Less: accumulated depreciation | (199,045 | ) | (108,662 | ) | ||||
Property, net | $ | 7,967,249 | $ | 7,846,145 |
Depreciation expense was $88,895 and $9,238 for the six month periods ended March 31, 2022 and 2021, respectively.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
Acquisition
During the year ended September 30, 2021, the Company, through its wholly owned subsidiary, Permex Petroleum US Corporation, acquired a 100% Working Interest and a 81.75% Net Revenue Interest in the Breedlove “B” Clearfork leases located in Martin County, Texas. The Company issued 25,000,000 common shares and 12,500,000 share purchase warrants as consideration for this acquisition. The Company valued the 25,000,000 common shares issued at a fair value of $2,468,750. The share purchase warrants were valued at $1,180,718 using the Black-Scholes option pricing model (assuming a risk-free interest rate of 1.51%, an expected life of 10-years, annualized volatility of 131.82% and a dividend rate of 0%). The warrants have an exercise price $0.16 per share (CAD$0.20) and are exercisable until October 1, 2031.
The total future decommissioning obligations are based on the Company’s net ownership in wells and facilities, estimated costs to reclaim and abandon the wells and facilities, and the estimated timing of the costs to be incurred in future periods. The total undiscounted amount of estimated cash flows required to settle the Company’s obligations is approximately $2,245,388 as at March 31, 2022 (September 30, 2021 - $2,836,777) and expected to be incurred between 2031 to 2041. The estimated net present value of the decommissioning obligations was calculated using an inflation factor of 2.0% (2020 - 2.0%) and discounted using a risk-free rate of 2.02% (2020 - 1.93%) based on expected settlement date.
Changes to the decommissioning obligations are as follows:
March 31, 2022 | September 30, 2021 | |||||||
Decommissioning obligations, beginning of the year | $ | 1,627,465 | $ | 792,814 | ||||
Obligations acquired | - | 784,418 | ||||||
Obligations derecognized | - | (140,704 | ) | |||||
Change in estimates | - | 234,331 | ||||||
Change in discount rate | - | (81,236 | ) | |||||
Accretion expense | 16,476 | 11,722 | ||||||
Foreign exchange movement | 11,487 | 26,120 | ||||||
$ | 1,655,428 | $ | 1,627,465 |
During the year ended September 30, 2021, the Company derecognized $140,704 in decommissioning obligations as a result of an assignment of certain oil and gas interests. The decommissioning obligations were offset by the decommissioning provision of $127,510 (2020 - $105,777) and a gain of $13,194 was netted against the loss realized from the sale of properties.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
Convertible debentures
The Company issued a total of $157,000 (CAD$200,000) in convertible debentures to the CEO and a director of the Company on October 17, 2019 and February 21, 2020 for cash.outstanding. The debentures aredebenture loan was secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, have a maturity date of September 30, 2021 and February 20, 2022, and bearbore interest at a rate of 12%12% per annum payable on maturity.and had a maturity date of December 20, 2022. The debentures aredebenture was convertible at the holder’s option into units of the Company at $0.12$26.28 (CAD$0.15) ) per unit. Each unit willwould be comprised of one common share of the Company and one share purchase warrant; each warrant entitlesentitled the holder to acquire one additional common share for a period of three yearsat an exercise price of $0.16$35.04 (CAD$0.20) ). As of March 31, 2022, $80,000 (CAD$100,000) (September 30, 2021 - $78,500) of debenture loan remained outstanding and the interest accrued on the loan was $nil (September 30, 2021 - $15,176).
During the six months ended March 31, 2022 and 2021, the Company recorded interest of $3,688 and $9,768, respectively, and is included within amounts due to related party on the consolidated balance sheets. During the year ended September 30, 2021,2022, the Company repaid $79,000 (CAD$100,000)$34,709 of the convertible debenture together with accrued interest of $13,090. During the six months ended March 31,loan (CAD$47,546). In November 2022, the Company paidrepaid the remaining principal loan amount of $38,291 (CAD$52,454).
The Company recorded interest of $18,960 (2020 - $13,090) accrued on$nil and $1,182 for the debentures.three and nine months ended June 30, 2023. The Company recorded interest of $2,597 and $6,285 for the three and nine months ended June 30, 2022.
Loan payable
In May 2020, the Company opened a Canada Emergency Business Account (“CEBA”) and received a loan of $32,000$28,640 (CAD$40,000)40,000) from the Canadian Government.
The CEBA program was established to provide interest-free loans of up to CAD$60,000 to small businesses and not-for-profits to help them cover operating costs during the COVID-19 pandemic. The loan iswas unsecured and non-interest bearing with an originala repayment deadline of December 31, 2022. In January 2022, the Canadian government extended the repayment deadline to December 31, 2023 in order for the loan to be considered for partial forgiveness of up to one-third of the balance. Any loans not repaid by December 31, 2023 convert to two-year term loans bearing interest at an annual rate of 5% starting January 1, 2024, with loans fully due by December 31, 2025.
Lease Liability
The Company has entered into office lease agreements for its office premises for terms ending in 2023. As of March 31, 2022, the Company’s lease had a weighted-average remaining term of 1.16 years. The undiscounted future lease payments as of March 31, 2022 are as follows:
2022 | $ | 27,921 | ||
2023 | 32,288 | |||
$ | 60,209 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
The components of lease expense the six month periods ended March 31 were as follows:
2022 | 2021 | |||||||
Fixed lease expense | $ | 27,774 | $ | 16,389 | ||||
Variable lease expense | 5,744 | 3,747 | ||||||
Total | $ | 33,518 | $ | 20,136 |
The following is a continuity schedule of the lease liability:
March 31, 2022 | September 30, 2021 | |||||||
Balance, beginning of the year | $ | 78,949 | $ | 53,128 | ||||
Addition | - | 57,357 | ||||||
Interest expense | 4,169 | 9,812 | ||||||
Lease payments | (27,774 | ) | (43,932 | ) | ||||
Foreign exchange movement | 629 | 2,584 | ||||||
Balance, end of the year | $ | 55,973 | $ | 78,949 | ||||
Current liability | $ | 47,559 | $ | 51,963 | ||||
Long-term liability | $ | 8,414 | $ | 26,986 |
During the year ended September 30, 2020,2022, the Company repaid the loan balance of $23,600 (CAD$30,000) and recognized a gain of $7,800 (CAD$10,000) on the forgiven amount.
9. RELATED PARTY TRANSACTIONS
The convertible debenture loan from the CEO of the Company mentioned in Note 8 was repaid during the nine months ended June 30, 2023.
SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||||||||
Net loss | $ | (1,452,827 | ) | $ | (888,669 | ) | $ | (3,873,341 | ) | $ | (1,797,785 | ) | ||||
Weighted average common shares outstanding | 491,037 | 483,150 | 485,779 | 352,934 | ||||||||||||
Weighted average common shares outstanding, basic | 491,037 | 483,150 | 485,779 | 352,934 | ||||||||||||
Basic and diluted loss per share | $ | (2.96 | ) | $ | (1.84 | ) | $ | (7.97 | ) | $ | (5.09 | ) | ||||
Basic loss per share | $ | (2.96 | ) | $ | (1.84 | ) | $ | (7.97 | ) | $ | (5.09 | ) |
For the three and nine months ended June 30, 2023, stock options and 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, 2022, stock options and warrants were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive.
F-37 |
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
11. EQUITY
Common stock
The Company has authorized an number of common shares with nopar value. At June 30, 2023 and September 30, 2022, the Company had and common shares issued a total of $157,000 (CAD$200,000) in convertible debenturesand outstanding, respectively, after giving effect to the CEO60:1 reverse stock split effective November 2, 2022 and 4:1 reverse stock split effective October 23, 2023.
During the nine months ended June 30, 2023, the Company announced a directorwarrant exercise incentive program (the “Program”) whereby the Company amended the exercise prices of 253,966warrants (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 cash. a period of 5 years from the date of issuance, at a price of $per Share.
On June 30, 2023, the Company issued common shares at a price of $per share from the exercise of the Eligible Warrants pursuant to the Program for gross proceeds of $781,953 (net proceeds of $688,092). In connection with the Program, the Company issued Incentive Warrants. The Company also incurred $62,556 and issued 5,470warrants 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 %, an expected life of years, annualized volatility of % and a dividend rate of %). 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 %, an expected life of years, annualized volatility of % and a dividend rate of %). The Company recognized a deemed dividend of $543,234for 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 loss. The Company also incurred legal and other expenses of $31,305 in connection with the Program.
During the year ended September 30, 2021, the Company repaid $79,000 (CAD$100,000) of the convertible debenture due to a director of the Company together with accrued interest of $13,090. As of March 31, 2022, $80,000 (CAD$100,000) (September 30, 2021 - $78,500) of debenture loan remained outstanding and the interest accrued on the loan was $nil (September 30, 2021 - $15,176).
During the six months ended March 31, 2022, the Company incurred management fees of $109,773 (2021 - $75,116) to a company controlled by the CEO of the Company. 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.
Subsequent to March 31, 2022, the Company amended the employment with the CEO of the Company for an annual base salary of $250,000, with no specified term. The CEO is also eligible on an annual basis for a cash bonus of up to 100% of annual salary. The employment agreement may be terminated with a termination payment equal to three years of base salary and a bonus equal to 20% of the annual base salary.
Subsequent to March 31, 2022, the Company entered into an employment 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. The employment agreement may be terminated with a termination payment equal to two months of base salary.
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
Common stock
The Company has authorized an unlimited number of common shares with no par value. At March 31, 2022 and September 30, 2021, the Company had 115,956,026 and 66,180,364 common shares issued and outstanding, respectively.
During the six months ended March 31, 2022, the Company:
a) | Completed a non-brokered private placement of | |
b) | Completed a brokered private placement of |
During the year ended September 30, 2021, the Company:
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
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%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 years and vest at the discretion of the Board of Directors at the time of grant.
F-38 |
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
11. EQUITY (cont’d…)
Share-based payments (cont’d…)
Stock option transactions are summarized as follows:
Number of options | Weighted Average Exercise Price | |||||||
Balance, September 30, 2020 | 2,340,189 | $ | 0.31 | |||||
Cancelled | (65,189 | ) | 0.40 | |||||
Balance, September 30, 2021 | 2,275,000 | $ | 0.33 | |||||
Granted | 3,300,000 | 0.19 | ||||||
Balance, March 31, 2022 | 5,575,000 | $ | 0.25 | |||||
Exercisable at March 31, 2022 | 5,500,000 | $ | 0.25 | |||||
Weighted average fair value of options granted | $ | 0.19 | (2021 - $nil) |
SCHEDULE OF STOCK OPTION TRANSACTIONS
Number of options | Weighted Average Exercise Price | |||||||
Balance, September 30, 2021 | 9,480 | $ | 78.05 | |||||
Granted | 13,749 | 42.04 | ||||||
Cancelled | (2,083 | ) | 69.38 | |||||
Balance, September 30, 2022 | $ | |||||||
Cancelled | (833 | ) | 42.62 | |||||
Balance, June 30, 2023 | $ | |||||||
Exercisable at June 30, 2023 | 20,313 | $ | 54.96 |
The aggregate intrinsic value of options outstanding and exercisable as at March 31,June 30, 2023 was $ (September 30, 2022 was $nil (2021 - $nil)$ ).
The options outstanding as of March 31, 2022 equaled 5,575,000 shares, andJune 30, 2023 have exercise prices in the range of $0.04 $to $0.40 $and a weighted average remaining contractual life of 8.13 years. The weighted average fair value of options granted during
During the sixnine months ended March 31,June 30, 2023 and 2022, was $0.19. There were no options granted during the year ended September 30, 2021.
During the six month periods ended March 31, 2022 and 2021, the Company recognized share-based payment expense of $604,676$ and $1,915,$ , respectively, for the portion of stock options that vested during the period. The share-based payment expense for the three months ended June 30, 2023 and 2022 was $ and $ , respectively. The following weighted average assumptions were used for the Black-Scholes valuation of stock options granted:
2022 | 2021 | |||||||
Risk-free interest rate | 1.50 | % | - | |||||
Expected life of options | 10 Years | - | ||||||
Expected annualized volatility | 131 | % | - | |||||
Dividend rate | Nil | - |
2023 | 2022 | |||||||
Risk-free interest rate | % | |||||||
Expected life of options | - | Years | ||||||
Expected annualized volatility | % | |||||||
Dividend rate | ||||||||
Weighted average fair value of options granted | $ |
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
Share-based payments (cont’d…)
As at March 31, 2022,June 30, 2023, the following stock options were outstanding:
Number of Options | Exercise Price | Expiry Date | |||||
1,675,000 | $ | 0.40 | December 4, 2027 | ||||
300,000 | $ | 0.24 | November 1, 2028 | ||||
300,000 | $ | 0.04 | March 16, 2030 | ||||
3,300,000 | $ | 0.19 | October 6, 2031 | ||||
5,575,000 |
WarrantsSCHEDULE OF STOCK OPTIONS OUTSTANDING
Number of Options | Exercise Price | Issuance Date | Expiry Date | |||||||||
5,730 | $ | 90.00 | ||||||||||
1,250 | $ | 54.00 | ||||||||||
1,250 | $ | 9.00 | ||||||||||
12,083 | $ | 43.20 | ||||||||||
20,313 |
Warrants are measured at fair value on the date of the grant as determined using the Black-Scholes option pricing model.
Warrant transactions are summarized as follows:
Number of Warrants | Weighted Average Exercise Price | |||||||
Balance, September 30, 2020 | 4,805,206 | $ | 0.21 | |||||
Granted | 12,500,000 | 0.16 | ||||||
Warrants expired | (4,805,206 | ) | 0.22 | |||||
Balance, September 30, 2021 | 12,500,000 | $ | 0.16 | |||||
Granted | 53,325,806 | 0.22 | ||||||
Balance, March 31, 2022 | 65,825,806 | $ | 0.21 |
As at March 31, 2022, the following warrants were outstanding:
Number of Options | Exercise Price | Expiry Date | |||||
1,484,318 | $ | 0.43 | November 4, 2023 | ||||
51,841,488 | $ | 0.21 | March 29, 2027 | ||||
12,500,000 | $ | 0.16 | October 1, 2031 | ||||
65,825,806 |
PERMEX PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
The calculation of basic and diluted loss per share for the six month periods ended March 31, 2022 and 2021 was based on the losses attributable to common shareholders. The following table sets forth the computation of basic and diluted loss per share:
2022 | 2021 | |||||||
Net loss | $ | (967,709 | ) | $ | (307,356 | ) | ||
Weighted average common shares outstanding | 69,078,031 | 40,503,681 | ||||||
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.01 | ) |
As of March 31, 2022, $80,000 (CAD$100,000) of convertible debentures convertible into 666,667 common shares, 5,575,000 (2021 - 2,340,189) stock options and 65,825,806 (2021 - 4,805,206) warrants were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive.
Operating segments
The Company operates in a single reportable segment – the acquisition, development and production of oil and gas properties in the United States.
98,970,113 Common Shares
Permex Petroleum Corporation
, 2022
F-39 |
PERMEX PETROLEUM CORPORATION
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
11. EQUITY (cont’d…)
Warrants
Warrant transactions are summarized as follows:
SCHEDULE OF WARRANTS TRANSACTIONS
Number of Warrants | Weighted Average Exercise Price | |||||||
Balance, September 30, 2021 | 52,083 | $ | 37.68 | |||||
Granted | 222,193 | 52.60 | ||||||
Balance, September 30, 2022 | 274,276 | $ | 48.48 | |||||
Exercised | (68,353 | ) | 11.44 | |||||
Granted | 73,823 | 18.00 | ||||||
Balance, June 30, 2023 | 279,746 | 39.90 |
As June 30, 2023, the following warrants were outstanding:
SCHEDULE OF WARRANTS OUTSTANDING
Number of Warrants | Exercise Price | Issuance Date | Expiry Date | |||||||||
4,393 | $ | 97.20 | ||||||||||
149,447 | $ | 50.40 | ||||||||||
73,823 | $ | 18.00 | ||||||||||
52,083 | $ | 36.00 | ||||||||||
279,746 |
5,515warrants 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 %, an expected life of years, annualized volatility of % and a dividend rate of %) and recorded as a warrant liability. The fair value of these warrants were remeasured at each reporting period and a gain on fair value of $178,509was recorded during the year ended September 30, 2022. During the nine months ended June 30, 2023, a gain on fair value of $23,500 was recorded (2022 - $152,869). During the three months ended June 30, 2023, a gain on fair value of $1,066 was recorded (2022 - $72,838).
SCHEDULE OF VALUATION OF WARRANTS
June 30, 2023 | September 30, 2022 | |||||||
Risk-free interest rate | 4.58 | % | 3.79 | % | ||||
Expected life of options | 0.33 Year | 1 Year | ||||||
Expected annualized volatility | 73.12 | % | 135.59 | % | ||||
Dividend rate | Nil | Nil | ||||||
Weighted average fair value of options granted | $ | 0.00 | $ | 1.46 |
F-40 |
Up to 1,900,000 Common Units, Each Consisting of a Common Share and a Warrant to Purchase One Common Share
Up to 1,900,000 Pre-funded Units, Each Consisting of a Pre-funded Warrant to Purchase One Common Share and a Warrant to Purchase One Common Share
Permex Petroleum Corporation
PRELIMINARYPROSPECTUS | ||
ThinkEquity
, 2023
Through and including , 2023 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II INFORMATION NOT REQUIRED IN PROSPECTUS.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the Company in connection with the issuance and distribution of the securities being registered hereunder.
SEC registration fees | $ | 4,344 | ||
FINRA filing fee | $ | 6,412 | ||
Nasdaq filing fee | $ | 55,000 | ||
Printing expenses* | $ | 10,000 | ||
Accounting fees and expenses* | $ | 80,000 | ||
Legal fees and expenses* | $ | 360,000 | ||
Blue sky fees* | $ | 5,000 | ||
Miscellaneous* | $ | 10,000 | ||
Total | $ | 530,756 |
* All amounts are estimatesestimated except the SEC registration fee, the FINRA filing fee and The Nasdaq Capital Market filing fee.
SEC registration fees | $ | 1,182 | ||
Printing expenses | $ | * | ||
Accounting fees and expenses | $ | * | ||
Legal fees and expenses | $ | * | ||
Blue sky fees | $ | * | ||
Miscellaneous | $ | * | ||
Total | $ | * |
* These fees are calculated based on the number of issuances and amount of securities offered and accordingly cannot be estimated at this time.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Business Corporations Act (British(British Columbia)
The Company is subject to the provisions of Part 5, Division 5 of the BCBCA.
Under Section 160 of the BCBCA, the Company may, subject to Section 163 of the BCBCA:
(a) | indemnify an individual who: |
(i) | is or was a director or officer of the Company, |
(ii) | is or was a director or officer of another corporation (A) at a time when the corporation is or was an affiliate of the Company; or (B) at our request, or |
(iii) | at our request of the Company, is or was, or holds or held a position equivalent to that of, a director or officer of a partnership, trust, joint venture or other unincorporated entity, |
including, subject to certain limited exceptions, the heirs and personal or other legal representatives of that individual (collectively, an “eligible party”), against all eligible penalties, defined below, to which the eligible party is or may be liable; and
(b) | after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by an eligible party in respect of that proceeding, where: |
(i) | “eligible penalty” means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible proceeding, |
(ii) | “eligible proceeding” means a proceeding in which an eligible party or any of the heirs and personal or other legal representatives of the eligible party, by reason of the eligible party being or having been a director or officer of, or holding or having held a position equivalent to that of a director or officer of, the Company or an associated corporation (A) is or may be joined as a party, or (B) is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding, |
(iii) | “expenses” includes costs, charges and expenses, including legal and other fees, but does not include judgments, penalties, fines or amounts paid in settlement of a proceeding, and |
(iv) | “proceeding” includes any legal proceeding or investigative action, whether current, threatened, pending or completed. |
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Under Section 161 of the BCBCA, and subject to Section 163 of the BCBCA, the Company must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by an eligible party in respect of that proceeding if the eligible party (a) has not been reimbursed for those expenses and (b) is wholly successful, on the merits or otherwise, in the outcome of the proceeding or is substantially successful on the merits in the outcome of the proceeding.
Under Section 162 of the BCBCA, and subject to Section 163 of the BCBCA, the Company may pay, as they are incurred in advance of the final disposition of an eligible proceeding, the expenses actually and reasonably incurred by an eligible party in respect of the proceeding, provided that the Company must not make such payments unless the Company first receives from the eligible party a written undertaking that, if it is ultimately determined that the payment of expenses is prohibited under Section 163 of the BCBCA, the eligible party will repay the amounts advanced.
Under Section 163 of the BCBCA, the Company must not indemnify an eligible party against eligible penalties to which the eligible party is or may be liable or pay the expenses of an eligible party in respect of that proceeding under Sections 160(b), 161 or 162 of the BCBCA, as the case may be, if any of the following circumstances apply:
(a) | if the indemnity or payment is made under an earlier agreement to indemnify or pay expenses and, at the time that the agreement to indemnify or pay expenses was made, the Company was prohibited from giving the indemnity or paying the expenses by its memorandum or Articles; |
(b) | if the indemnity or payment is made otherwise than under an earlier agreement to indemnify or pay expenses and, at the time that the indemnity or payment is made, the Company is prohibited from giving the indemnity or paying the expenses by its memorandum or Articles; |
(c) | if, in relation to the subject matter of the eligible proceeding, the eligible party did not act honestly and in good faith with a view to the best interests of the Company or the associated corporation, as the case may be; or |
(d) | in the case of an eligible proceeding other than a civil proceeding, if the eligible party did not have reasonable grounds for believing that the eligible party’s conduct in respect of which the proceeding was brought was lawful. |
If an eligible proceeding is brought against an eligible party by or on behalf of the Company or by or on behalf of an associated corporation, we must not either indemnify the eligible party under Section 160(a) of the BCBCA against eligible penalties to which the eligible party is or may be liable, or pay the expenses of the eligible party under Sections 160(b), 161 or 162 of the BCBCA, as the case may be, in respect of the proceeding.
Under Section 164 of the BCBCA, and despite any other provision of Part 5, Division 5 of the BCBCA and whether or not payment of expenses or indemnification has been sought, authorized or declined under Part 5, Division 5 of the BCBCA, on application of the Company or an eligible party, the court may do one or more of the following:
(a) | order the Company to indemnify an eligible party against any liability incurred by the eligible party in respect of an eligible proceeding; |
(b) | order the Company to pay some or all of the expenses incurred by an eligible party in respect of an eligible proceeding; |
(c) | order the enforcement of, or any payment under, an agreement of indemnification entered into by the Company; |
(d) | order the Company to pay some or all of the expenses actually and reasonably incurred by any person in obtaining an order under Section 164 of the BCBCA; or |
(e) | make any other order the court considers appropriate. |
-97- |
Section 165 of the BCBCA provides that the Company may purchase and maintain insurance for the benefit of an eligible party or the heirs and personal or other legal representatives of the eligible party against any liability that may be incurred by reason of the eligible party being or having been a director or officer of, or holding or having held a position equivalent to that of a director or officer of, the Company or an associated corporation.
Company’s Articles
Under Part 21.2 of our Articles, and subject to the BCBCA, the Company must indemnify a director, former director or alternative director of the Company and his or her heirs and legal personal representatives against all eligible penalties to which such person is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such person in respect of that proceeding. Each director and alternate director is deemed to have contracted with the Company on the terms of the indemnity contained in the Company’s Articles.
Under Part 21.3 of the Company’s Articles, and subject to any restrictions in the BCBCA, the Company may agree to indemnify and may indemnify any person.
Under Part 21.4 of the Company’s Articles, the failure of a director, alternate director or officer of the Company to comply with the BCBCA or the Company’s Articles or, if applicable, any former Companies Act or former Articles, does not invalidate any indemnity to which he or she is entitled under the Company’s Articles.
Under Part 21.5 of the Company’s Articles, the Company may purchase and maintain insurance for the benefit of any person (or his or her heirs or legal personal representatives) who:
● | is or was a director, alternate director, officer, employee or agent of the Company; | |
● | is or was a director, alternate director, officer, employee or agent of a corporation at a time when the corporation is or was an affiliate of the Company; | |
● | at the request of the Company, is or was a director, alternate director, officer, employee or agent of a corporation or of a partnership, trust, joint venture or other unincorporated entity; |
● | at the request of the Company, holds or held a position equivalent to that of a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity; |
against any liability incurred by him or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of transactions during the three years preceding this offering, involving offers and sales of our securities which took place outside the United States, unless otherwise stated, and were not registered under the Securities Act.
2023
On June 30, 2023, we completed an early warrant exercise program whereby we amended the exercise price of an aggregate of 253,966 Eligible Warrants to $11.44 per share during the Early Exercise Period. Pursuant to the warrant exercise program, an aggregate of 68,349 Eligible Warrants were exercised for aggregate gross proceeds of approximately $781,952 and net proceeds of approximately $688,092. As a result, we issued an aggregate of 68,353 common shares and 68,353 Incentive Warrants. Each Incentive Warrant is exercisable for one common share for a period of five years from June 30, 2023 at an exercise price of $18.00 per share. In connection with the warrant exercise program, we issued an aggregate of 5,470 Representative’s Warrants on the same terms as the Incentive Warrants, to representatives of ThinkEquity LLC, as financial advisor. The offering was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by the SEC for purchasers located in the United States and Regulation S promulgated under the Securities Act for purchasers located outside of the United States.
2022
On March 28 and 29, 2022, the Company closed a brokered private placement of an aggregate of 47,128,625196,369 units at a price of $0.16$38.40 per unit for gross proceeds of $7,540,580. Each unit is comprised of one common share and one common shareCommon Share purchase warrant. Each warrant is exercisable into one common shareCommon Share of the Company for a period of five years at an exercise price of $0.21$50.40 per share. ThinkEquity LLC acted as sole placement agent for the private placement and it and/or its designees received five year warrants to purchase up to 4,712,863 common shares19,628 Common Shares of the Company at an exercise price of $0.21$50.40 per share. The offering was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated by the SEC for purchasers located in the United States and Regulation S promulgated under the Securities Act for purchasers located outside of the United States.
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2021
2021
On June 16, 2021, the Company issued 500,000 common shares2,083 Common Shares of the Company with a fair market value of $34,850 (C$42,500) pursuant to the investor relations service agreement.
On September 30, 2021, the Company issued 25,000,000 common shares104,167 Common Shares with a value of $2,468,750 (C$3,125,000) and 12,500,00052,083 share purchase warrants in connection with the acquisition of the Breedlove “B” Clearfork leases. The share purchase warrants have an exercise price $0.16$36.00 per share (C$0.2048.00 per share) and are exercisable until October 1,September 30, 2031.
On October 7, 2021, the Company granted 3,300,00013,749 stock options to certain directors and officers of the Company. The stock options are exercisable at a price of $0.19$42.04 (C$0.24)57.60) per common shareCommon Share and expire October 6, 2031.
On November 4, 2021, the Company completed a non-brokered private placement of 2,647,03711,029 units at a price of $0.22$51.84 (C$0.27)64.80) per unit for gross proceeds of $571,760 (C$714,700). Each unit is comprised of one common shareCommon Share and one half of share purchase warrant, and each whole warrant entitles the holder to acquire one additional common shareCommon Share for a period of 24 months at an exercise price of $0.43 (C$0.54)$94.61 (CAD$129.60). The Company issued two year warrants to purchase up to 160,800 common shares670 Common Shares of the Company at an exercise price of $0.43$97.20 (C$0.54)129.60) as a finders’ fee.
2020
On November 18, 2020, the Company issued 656,250 common shares2,735 Common Shares at fair market value of $20,108 pursuant to a marketing agreement.
On March 16, 2020, the Company granted ten year options to purchase up to 300,000 common shares1,250 Common Shares of the Company to a director of the Company at an exercise price of $0.04$9.42 (C$0.05)12.00) per common share.Common Share.
In February 2020, the Company issued a secured convertible debenture in the principal amount of $75,000 (C$100,000) to the Chief Executive Officer and President of the Company. The debenture is secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, matures no later than August 20, 2022 or an earlier date at the request of the holder thereof upon 30 days written notice, and bears interest at a rate of 12% per annum, payable on maturity. The debenture is convertible at the holder’s option into units of the Company at $0.12 (C$0.15)$26.28 (CAD$36.00) per unit. Each unit will be comprised of one common shareCommon Share of the Company and one share purchase warrant. Each warrant entitles the holder to acquire one additional common shareCommon Share for a period of three years at an exercise price of $0.16 (C$0.20)$35.04 (CAD $48.00).
2019
On May 8, 2019, the Company completed a non-brokered private placement of 4,050,366 units at a price of $0.11 per unit (C$0.15 per unit) for gross proceeds of $451,413 (C$607,555). Each unit consists of one common share and one common share purchase warrant, with each warrant entitling the holder to purchase one additional share at an exercise price of $0.19 (C$0.25) per share for a period of 24 months form the closing of the offering, subject to accelerated expiration in the event the price of the Company’s shares close at or greater than $0.37 (C$0.50) for ten consecutive trading days on the CSE.
In October 2019, the Company issued a secured convertible debenture of $75,000 (C$100,000) to the Chief Operating Officer of the Company. The debenture was secured by an interest in all of the Company’s right, title, and interest in all of its oil and gas assets, matured on September 30, 2021, and accrued interest at a rate of 12% per annum, payable on maturity. The debenture was convertible at the holder’s option into units of the Company at $0.12 (C$0.15) per unit with each unit being comprised of one common share of the Company and one share purchase warrant. Each warrant would have entitled the holder to acquire one additional common share for a period of three years at an exercise price of $0.16 (C$0.20).
Unless otherwise set forth herein, the offerings were exempt from registration under Regulation S promulgated under the Securities Act for purchasers located outside of the United States.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit Number | Exhibit Description | |
Form of Underwriting Agreement | ||
3.1 | Articles of | |
Specimen of Share Certificate for Permex Petroleum Corporation’s | ||
4.2** | ||
4.3** | ||
4.4** | ||
4.5** | Form of Pre-funded Warrant (included in Exhibit 1.1) | |
4.6 | Form of Incentive Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 11, 2023) | |
5.1** | Opinion of DuMoulin Black LLP | |
Form of Registration Rights Agreement between the Company and various purchasers (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 28, 2022) | ||
Employment Agreement by and between the Company and Mehran Ehsan (Incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 28, 2022) | ||
2017 Stock Option Plan (Incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 28, 2022) | ||
16.1 | Letter of Davidson & Company LLP dated November 3, 2022 (Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 4, 2022) | |
21.1** | List of subsidiaries of the Registrant | |
23.1* | Consent of Davidson & Company LLP | |
23.2** | Consent of DuMoulin Black LLP (included in Exhibit 5.1) | |
23.3** | Consent of Sheppard, Mullin, Richter & Hampton LLP (included in Exhibit 5.2) | |
23.4* | Consent of MKM Engineering | |
Consent of | ||
Power of Attorney | ||
99.1** | ||
99.2 | Appraisal of Certain Oil & Gas Interests Owned by Permex Petroleum Corporation Located in New Mexico & Texas as of September 30, 2021 (Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-1 filed with the SEC on August 8, 2022) | |
Calculation of Filing Fees Table |
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Indicates management contract or compensatory plan or arrangement.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrantRegistrant pursuant to the foregoing provisions, or otherwise, the registrantRegistrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrantRegistrant of expenses incurred or paid by a director, officer or controlling person of the registrantRegistrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrantRegistrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on this Amendment No. 8 to Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Dallas, Texas on the 15th25th day of July, 2022.October, 2023.
Permex Petroleum Corporation | ||
By: | /s/ Mehran Ehsan | |
Name: | Mehran Ehsan | |
Title: | Chief Executive Officer |
Signature | Date | |||
/s/ Mehran Ehsan | Chief Executive Officer, President and Director (Principal Executive Officer) | October 25, 2023 | ||
Mehran Ehsan | ||||
* | Chief Financial Officer | October 25, 2023 | ||
Gregory Montgomery | ||||
* | Chief Operating Officer and Director | October 25, 2023 | ||
Barry Whelan | ||||
* | Director | October 25, 2023 | ||
| ||||
Douglas Charles Urch | ||||
* | Director | October 25, 2023 | ||
James Perry Bryan | ||||
* | Director | October 25, 2023 | ||
John James Lendrum | ||||
* | Director | October 25, 2023 | ||
Melissa Folz |
*By: | /s/Mehran Ehsan | |
Name: | Mehran Ehsan | |
Title: | Attorney-in-Fact |