IPO Update: Trio Petroleum Aims For $6 Million U.S. IPO

A Quick Take On Trio Petroleum

Trio Petroleum Corp. (NYSEMKT:TPET) has filed to raise $6 million in an IPO of its common stock, according to an amended S-1/A registration statement.

The firm operates as an oil & gas exploration firm with operations in Monterey County, California.

The company is generating losses on zero revenue, so the IPO is highly speculative.

I’ll pass on the IPO, although day traders may be attracted to the stock’s low nominal price for its potential for volatility.

Trio Overview

Danville, California-based Trio was founded to develop oil & gas properties in Monterey County, California, which it refers to as the South Salinas Project.

Management is headed by Chief Executive Officer Frank C. Ingriselli, who has been with the firm since February 2022 and was previously president of Indonesia Energy Corp. (INDO), which recently went public in the U.S.

Management believes the South Salinas Project has the potential of up to ’39 million barrels of oil plus 40 billion cubic feet of gas.’ (P2 Probable)

The company aims to develop its existing leasehold and possibly acquire ‘other opportunities for oil and gas production in California.’

As of April 30, 2022, Trio has booked fair market value investment of approximately $10 million in equity and debt as of April 30, 2022, from investors, including Elpis Capital, Gencap Fund, Primal Nutrition and others.

Trio’s Market & Competition

According to a 2022 market research report by Offshore Technology, California’s oil and gas production rose 5.27% month-over-month to 592,000 barrels per day in February 2022, but declined year-over-year by 13.7%

The following chart shows oil production in California by month for the twelve months ended February 2022:

While California regulators have been increasingly restrictive against fossil fuel operations, the state continues to need a significant increase in energy due to greater severity of climate events in recent years amid a drop in energy plant capacity.

Major competitive or other industry participants include:

• California Resources
• Exxon Mobil
• Chevron
• Sentinel Peak Resources California
• Berry Petroleum
• Sempra Energy
• Buckeye Partners
• Niska Gas Storage Partners
• Pacific Gas & Electric
• Others

Trio Petroleum Corp. Financial Performance

Below are relevant financial results derived from the firm’s registration statement:

As of January 31, 2023, Trio had $112,531 in cash and $7.5 million in total liabilities.

Trio Petroleum’s IPO Details

TPET intends to sell approximately 1.7 million shares of common stock at a proposed midpoint price of $3.50 per share for gross proceeds of approximately $6.0 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest in purchasing shares at the IPO price.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $65.2 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 8.98%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says there are no legal proceedings to which the firm is a party to that would have a material adverse effect on it.

The sole listed underwriter of the IPO is Spartan Capital.

Commentary About Trio Petroleum

TPET is seeking public capital market investment to develop its oil & gas interests in the Monterey region of California.

The company’s financials show no revenue and some expenses associated with its initial operations.

The firm currently plans to pay no dividends and to retain future earnings for reinvestment back into the company’s operations and growth initiatives.

The market opportunity for developing oil & gas resources in California is significant, but the firm faces competition from major oil & gas producers and the state regulatory bodies are highly restrictive.

Spartan Capital is the sole underwriter, and the only IPO led by the firm over the last 12-month period has generated a return of negative (86.1%) since its IPO. This is a bottom-tier performance for all significant underwriters during the period.

The primary risk to the company’s outlook is its asset-light, thinly capitalized status and lack of revenue history.

As for valuation expectations, management is asking IPO investors to pay an Enterprise Value of over $65 million despite no current revenue.

The ultra-low nominal price of the stock as proposed by management is a typical feature of thinly capitalized companies seeking to appeal to retail investors or day traders.

The company is generating losses on zero revenue, the IPO is highly speculative, so I’ll pass on it.

Expected IPO Pricing Date: Month of March 2023.

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Source: https://seekingalpha.com/article/4590399-ipo-update-trio-petroleum-aims-6-million-us-ipo?open_reset_password=true&origin=confirm_registration&utm_campaign=%7Cconfirmation_link_registration&utm_medium=email&utm_source=seeking_alpha