Laredo Oil, Inc. SEC 10-Q Report

Laredo Oil, Inc., a company engaged in the acquisition, exploration, and development of oil and gas properties, has released its Form 10-Q report for the first quarter of fiscal year 2025, ending August 31, 2024. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces.

Financial Highlights

• Revenue: $6,048, recognized from one of the three Texakoma wells being put into production during the first quarter of fiscal year 2025.
• Gross Profit (Loss): $6,048 for the three months ended August 31, 2024.
• Operating Loss: $(664,311) for the three months ended August 31, 2024, compared to $(1,349,579) for the same period in 2023.
• Net Loss: $(469,252) for the three months ended August 31, 2024, compared to $(1,119,710) for the same period in 2023.
• Net Loss Per Share, Basic and Diluted: $(0.01) for the three months ended August 31, 2024, compared to $(0.02) for the same period in 2023.

Business Highlights

• Oil and Gas Acquisition and Drilling Costs: The company recorded oil and gas acquisition and drilling costs totaling $2,475,603 as of August 31, 2024, up from $610,663 as of May 31, 2024. This increase reflects significant investments in unproved and unevaluated properties.
• Lustre Field Prospect Development: Under the Development Agreement with Texakoma, two test wells were successfully drilled, with Texakoma covering 100% of the costs. Lustre and Erehwon jointly hold a 15% working interest in these wells.
• Future Drilling Plans: Texakoma has agreed to drill eight additional wells in the Lustre Field Prospect, with Lustre and Erehwon holding a 15% working interest in these wells.
• Saltwater Disposal Wells Acquisition: On September 16, 2024, Lustre Oil Company, LLC acquired the Cranston salt-water disposal well and two additional shut-in wells in Valley County, Montana, to support dewatering and production efforts.
• Olfert 11-4 Well Development: The Olfert 11-4 well, drilled in May 2022, remains shut-in pending access to a proximate saltwater disposal well. The company plans to bring this well into production as soon as practical.
• New Acreage Acquisition: The company acquired 45,766 gross acres and 38,153 net acres of mineral property interests in Montana as of August 31, 2024, as part of its strategy to expand its exploration and production footprint.
• Participation Agreement for Midfork Field: In December 2023, the company entered into a Participation Agreement through Hell Creek Crude, LLC, providing $2,034,000 to acquire leases and drill a development well in the Midfork Field in Montana.
• Revenue from Texakoma Wells: The company recognized $6,048 of revenue from one of the three Texakoma wells being put into production during the first quarter of fiscal year 2025. Production is expected to increase once the Cranston SWD well becomes operational.
• Stock Issuance for Funding: Between August 31, 2024, and October 15, 2024, the company raised $375,000 through the issuance of 872,093 shares of common stock at an average price of $0.43 per share.
• Future Outlook: The company is focused on putting wells associated with the Texakoma agreement and the HCC well into production. Until adequate revenue is generated, the company plans to raise funds through the sale of debt and equity securities to support operations and oil field expansion.

Strategic Initiatives

• Exploration and Development Agreement with Texakoma: Laredo Oil, Inc. has entered into an agreement with Texakoma Exploration & Production Company to develop the Lustre Field Prospect, which includes drilling and completing multiple wells.
• Capital Management: The company raised $425,000 through the sale of 939,535 shares of common stock during the first fiscal quarter of 2025. Additionally, Laredo has been managing its debt obligations by entering into several promissory notes and convertible debt agreements.
• Future Outlook: Laredo Oil, Inc. plans to continue its efforts to improve liquidity and financial stability by raising additional funds through the issuance of debt and equity securities. The company aims to put wells associated with the Texakoma agreement and the HCC well into production, pending the operational completion of the Cranston saltwater disposal well. Laredo expects to generate increased revenue from these wells once they are fully operational. The company is also focused on developing its additional acreage north of the Fort Peck Reservation and securing the necessary funding to drill exploratory wells in this area.

Challenges and Risks

• Operational Risks:
  • Olfert 11-4 Well: The company has taken an accounting impairment charge to reduce the asset value of the Olfert 11-4 well to salvage value due to delays in gaining access to a proximate salt-water disposal well. This delay has made the well economically unviable for two years.
  • Liquidity and Capital Resources: The company is heavily reliant on raising funds through the sale of debt and equity securities to meet its operational and development needs. As of August 31, 2024, the company had $1,935,310 in cash and cash equivalents but had total debt outstanding of $3,031,212.
  • Going Concern: The company has routinely incurred losses since inception, resulting in an accumulated deficit. There is substantial doubt about the company’s ability to continue as a going concern within the one-year period after the issuance date of the consolidated financial statements.
• Market Risks:
  • Cash Equivalents: The company’s exposure to market risk is confined to its cash equivalents, which are invested in high-quality financial instruments. The company believes it is subject to limited credit risk and does not have material exposure to interest rate risk due to the short-term nature of its cash investments.
• Development and Production Risks:
  • Texakoma Agreement: The company is dependent on Texakoma’s continued participation and funding for the development of additional wells. Any delays or changes in Texakoma’s commitment could impact the company’s development plans and future revenue.
  • Additional Acreage North of the Fort Peck Reservation: The company is in the process of raising $7.5 million to drill three exploratory wells. The success of this fundraising effort and the subsequent drilling results are critical to proving up portions of the company’s mineral rights and future production potential.
• Financial Risks:
  • Debt Obligations: The company has significant debt obligations, including notes payable to various parties and short-term convertible notes. The ability to service this debt and meet repayment obligations is a key risk, especially given the company’s current liquidity position and ongoing need for additional financing.
  • Revenue Generation: The company recognized minimal revenue of $6,048 from one of the three Texakoma wells being put into production during the first quarter of fiscal year 2025. The expectation of increased production is contingent on the operational completion of a proximate saltwater disposal well, which introduces uncertainty in revenue projections.
• Regulatory and Compliance Risks:
  • Recently Issued Accounting Pronouncements: The company must stay compliant with new accounting standards and pronouncements, which could impact financial reporting and require adjustments to current accounting practices.

Management's Strategies to Address Risks:

• The company is actively working to complete the Olfert 11-4 well and bring it into production despite the impairment charge.
• Efforts are ongoing to raise funds through the issuance of debt and equity securities to support well development and maintain operations.
• The company has attracted and retained key personnel with significant industry experience and is controlling costs by requiring personnel to multi-task.
• The company is focused on improving operations to sustain itself for the next twelve months and beyond, although there is no assurance of success.

SEC Filing: Laredo Oil, Inc. [ LRDC ] - 10-Q - Oct. 21, 2024