PERMEX PETROLEUM CORPORATION You should read the following discussion and analysis of our financial condition and results of operations together with the Company's consolidated financial statements and the related notes thereto and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. All amounts in this discussion and analysis of our financial condition and results of operations are inU.S. dollars, unless otherwise noted.
Reserve engineering is a method of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of previous estimates. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas and oil that are ultimately recovered. Overview The Company was incorporated onApril 24, 2017 under the laws ofBritish Columbia, Canada . The Company is an independent energy company engaged in the acquisition, exploration, development and production of oil and gas properties on private, state and federal land inthe United States , primarily in thePermian Basin which includes theMidland Basin andDelaware Basin . The Company focuses on acquiring producing assets at a discount to market, increasing production and cash-flow through recompletion and re-entries, secondary recovery and lower risk infill drilling and development. Currently, the Company owns and operates various oil and gas properties located inTexas andNew Mexico . In addition, the Company holds various royalty interests in 73 wells and 5 permitted wells across 3,800 acres within thePermian Basin ofWest Texas and southeastNew Mexico . Moreover, the Company owns and operates more than 78 oil and gas wells, has more than 11,700 net acres of production oil and gas assets, 62 shut-in opportunities, 17 salt water disposal wells allowing for waterflood secondary recovery. 36 Key Activities:
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("J.P.") Bryan, Jr. and
Directors.
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44,117 units at a price of
of 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
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previously shut-in oil well on its West Henshaw property in
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aggregate of 785,477 units at a price of
purchase warrant. Each warrant is exercisable into one common share for a
period of five years at an exercise price of
acted as sole placement agent for the private placement and it and its
designees received five year warrants to purchase up to 78,548 common shares of
at an exercise price of
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the recompletion of a previously shut-in oil well on its West Henshaw property
in
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as Chief Financial Officer and Corporate Secretary of the Company effective May
1, 2022. The Company announced that Mr.
of the Company.
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under the Securities Act of 1933 with the
(the "SEC") to register for resale up to 98,970,113 common shares of the
Company, including 51,841,488 common shares issuable upon exercise of
outstanding warrants. The Registration Statement became effective on
2022.
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drilling on its property in
permitted and are expected to be drilled and completed on the property in the
short term.
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recompleted oil and gas wells located in
County,
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drilling on its Breedlove Field Prospect located in
PPC Eoff #3 well is the first well to be drilled by Permex on the 7,780 gross
acre Breedlove oil field.
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to the Company's Board of Directors.
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Company's outstanding common shares. The conversion and/or exercise prices of
our issued and outstanding convertible securities, including shares issuable
upon exercise of outstanding stock options and warrants, and conversion of our
outstanding convertible notes have been adjusted accordingly.
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Eoff #3 well. The target depth of 8,100 ft (2468 meters) was achieved, and the
casing was run to total depth. Recent Developments OnNovember 2, 2022 , we effected a 1-for-60 reverse split of our outstanding common shares. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of common shares. The conversion and/or exercise prices of our issued and outstanding convertible securities, including shares issuable upon exercise of outstanding stock options and warrants, conversion of our outstanding convertible notes and conversions of preferred stock have been adjusted accordingly. All information presented in this Annual Report has been retrospectively restated to give effect to our 1-for-60 reverse split of our outstanding common shares, and unless otherwise indicated, all such amounts and corresponding conversion price and/or exercise price data set forth in this Annual Report has been adjusted to give effect to such reverse stock split.
37 InNovember 2022 , we announced that drilling commenced on our Eoff PPC#3 well on ourBreedlove Oilfield , that the target depth of 8,100 ft (2468 meters) was achieved and that the casing was run to total depth. The electric wireline logging sequence of the wellbore was also completed, and we believed the results to be positive as all indications from the drilling show to be favorable as multiple zones have been found which allows us to proceed with the next steps of perforation and completion. Impact of Covid-19
InMarch 2020 theWorld 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 andU.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. JOBS Act OnApril 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 thePublic 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$1.07 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$1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of theSEC . Selected Annual Information
The following table sets out selected financial information for the Company
which has been derived from the Company's audited financial statements for the
fiscal years ended
Fiscal 2022 ($) Fiscal 2021 ($)
Revenues 878,459 84,625
Net income (loss) (2,714,616 ) (1,253,242 )Net income (loss) per share - basic and diluted (1.76 ) (1.84 ) Total assets 12,567,558
6,941,302
Total non-current liabilities 400,594
610,980
Dividends - -
38
Factors That Affect the Comparability of the Annual Financial Data Disclosed Above
Net losses for the years endedSeptember 30, 2022 and 2021 were mainly attributable to operating expenses (2022 -$3,778,693 , 2021 -$1,324,361 ) and other income/expense (2022 - income of$185,618 , 2021 - expense of$13,506 ), partially offset by revenue from oil and gas sales and royalty income (2022 -$878,459 , 2021 -$84,625 ). The increase in total assets in fiscal 2022 is due to net proceeds of$7,044,472 raised from private placement financings. The change in non-current liabilities in fiscal 2022 is mainly due to the changes in estimates on asset retirement obligations. Results of Operations Selected Operating Data
Annual Sales and Production Results
The average sales prices of the Company's oil and gas products sold in the
fiscal years ended
The Company's net production quantities by final product sold in the fiscal
years ended
The Company's average production costs per unit for the fiscal years ended
The breakdown of production and prices between oil/condensate and natural gas
was as follows:
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Net Production Volumes September 30, 2022 September 30, 2021 September 30, 2020
Oil/Condensate (Bbl) 10,670 948 16,240
Natural Gas (Mcf) 11,567 1,410 9,196
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Average Sales Price September 30, 2022 September 30, 2021 September 30, 2020
Oil/Condensate ($/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
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Net Production Volumes September 30, 2022 September 30, 2021 September 30, 2020
Oil/Condensate (Bbl) 6,998 - -
Natural Gas (Mcf) 11,567 419 -
Henshaw
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Net Production Volumes September 30, 2022 September 30, 2021 September 30, 2020
Oil/Condensate (Bbl) 2,189 - -
Natural Gas (Mcf) - - -
Pittcock & Mary Bullard
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Net Production Volumes September 30, 2022 September 30, 2021 September 30, 2020
Oil/Condensate (Bbl) 1,483 847 291
Natural Gas (Mcf) - - -
39
ODC San Andres
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Net Production Volumes September 30, 2022 September 30, 2021 September 30, 2020
Oil/Condensate (Bbl) - - 15,948
Natural Gas (Mcf) - - 2,605
During the year ended September 30, 2022 , the Company reported a net loss of
$2,714,616 as compared to a net loss of $1,253,242 for the year ended September
30, 2021 . 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 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 in 2021. The increase was mainly due to revenue
generated from sales of oil and gas extracted from our Breedlove "B" Clearfork
properties that were acquired at the end of fiscal 2021, which accounted for 70%
of the Company's oil and gas sales in the current year. The Company also brought
Pittcock North, Mary Bullard , and West Henshaw wells back 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 production expenses for fiscal 2022 were$829,194 compared with$59,671 in fiscal 2021. The increase was mostly due to the increase in production in 2022 compared to 2021 combined with increased maintenance expenses related to bringing the West Henshaw wells back online in 2022. The general and administrative expenses excluding 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 increase in capital raising and marketing activities during 2022. Specifically, the variance in 2022 from 2021 was mainly attributable to:
? Accounting and audit fees of
from 2021 mostly due to increased production activities and the increased
regulatory compliance work in
Form S-1 (the "Registration Statement") with the
consultants for geological, project management, and general regulatory and
corporate consulting work. The increase in 2022 from 2021 was mostly due to the
increase in field and corporate activities in fiscal 2022.
? Legal fees of
mostly due to the work related to the preparation of the Registration Statement
and the increased regulatory compliance requirements in
connection with the Company becoming required to file periodic and current
reports under Exchange Act in 2022
? Management fees of
the Company's Chief Executive Officer ("CEO"). The Company had an employment
contract with the Company's Chief Executive Officer for an annual base salary
of
increased to
to
included costs of marketing firms for investor awareness programs and promotion
campaigns.
? Office and general of
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 inOctober 2021 . Share-based compensation expenses 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. 40
Liquidity and Capital Resources
As atSeptember 30, 2022 , the Company had a cash balance of$3,300,495 , an increase of$3,274,689 from the cash balance of$25,806 onSeptember 30, 2021 . During the year endedSeptember 30, 2022 , cash used in operating activities was$2,024,023 . The Company invested$1,685,999 in capital expenditures on its oil and gas assets in fiscal 2022, compared to$265,717 invested in fiscal 2021. Financing activities provided the Company with cash of$6,984,711 mostly as a result of the Company receiving net proceeds of$7,044,472 from private placement financings, being partially offset by the repayment of a loan using$23,600 of cash.
The Company had a working capital of
Although the Company expects to invest additional capital on the continued development of its oil and gas operations, the Company currently does not have material commitments for capital expenditures. As of bothSeptember 30, 2022 and the date of our Annual Report on Form 10-K for the year endedSeptember 30, 2022 , the Company believes it has sufficient working capital to meet its anticipated operating and capital requirements over the next 12 months. The Company will continue to monitor the current economic and financial market conditions and evaluate their impact on the Company's liquidity and future prospects.
Critical Accounting Estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. Significant estimates have been used by management in conjunction with the following: (i) petroleum and 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 asset retirement obligations; (iv) income taxes receivable or payable; (v) the useful lives of assets for the purposes of depreciation; (vi) general credit risk associated with receivables and 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.
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