SCHEDULE
OF MATURITIES LEASE LIABILITY
| |
| |
2021 | |
$ | 14,607 | |
2022 | |
| 1,923 | |
Total | |
$ | 16,530 | |
Less: Imputed interest | |
| (1,080 | ) |
Present value of lease liabilities | |
$ | 15,450 | |
NOTE
6. NOTES PAYABLE
The
following table summarizes the Company’s notes payable:
SCHEDULE OF NOTES PAYABLE
| |
Interest rate | | |
Date of maturity | | |
September 30, 2021 | | |
December 31,
2020 | |
Truck loan (i) | |
5 | % | |
| January 20, 2022 | | |
$ | 4,022 | | |
$ | 9,917 | |
Credit note I (ii) | |
12 | % | |
| May 11, 2021 | | |
| — | | |
| 800,000 | |
Credit note II (iii) | |
12 | % | |
| October 17, 2019 | | |
| — | | |
| 346,038 | |
Credit note III (iv) | |
15 | % | |
| April 25, 2021 | | |
| — | | |
| 750,000 | |
Discount on credit note III | |
— | | |
| — | | |
| — | | |
| (5,976 | ) |
Credit note IV(v) | |
10 | % | |
| June 30, 2021 | | |
| 838,220 | | |
| 937,109 | |
Discount on credit note IV | |
— | | |
| — | | |
| (144,194 | ) | |
| (285,768 | ) |
Credit note V(vi) | |
10 | % | |
| December 31, 2021 | | |
| 918,049 | | |
| — | |
Credit note VI (vii) | |
10 | % | |
| December 31, 2021 | | |
| 1,133,104 | | |
| — | |
Lee Lytton | |
— | | |
| On demand | | |
| 3,500 | | |
| 3,500 | |
Joel Oppenheim (viii) | |
10 | % | |
| On demand | | |
| — | | |
| 161,900 | |
Joel Oppenheim (viii) | |
10 | % | |
| On demand | | |
| — | | |
| 15,000 | |
Joel Oppenheim(viii) | |
10 | % | |
| October 17, 2018 | | |
| — | | |
| 240,000 | |
Credit Note VII (viii) | |
10 | % | |
| December 31, 2021 | | |
| 416,900 | | |
| — | |
Origin Bank (PPP loan) (ix) | |
— | | |
| — | | |
| — | | |
| 56,680 | |
Quinten Beasley | |
10 | % | |
| October 14, 2016 | | |
| 5,000 | | |
| — | |
Jovian Petroleum Corporation (x) | |
3.5 | % | |
| December 31, 2021 | | |
| 178,923 | | |
| — | |
M. Horowitz | |
10 | % | |
| October 14, 2016 | | |
| 10,000 | | |
| 10,000 | |
| |
| | |
| | | |
$ | 3,363,524 | | |
$ | 3,038,310 | |
Current portion: | |
| | |
| | | |
| | | |
| | |
Truck loan | |
| | |
| | | |
$ | 4,022 | | |
$ | 9,345 | |
Credit note I | |
| | |
| | | |
| — | | |
| 800,000 | |
Credit note II | |
| | |
| | | |
| — | | |
| 346,038 | |
Credit note III | |
| | |
| | | |
| — | | |
| 744,023 | |
Credit note IV | |
| | |
| | | |
| 694,026 | | |
| 651,251 | |
Credit note V | |
| | |
| | | |
| 918,049 | | |
| — | |
Credit note VI | |
| | |
| | | |
| 1,133,104 | | |
| — | |
Lee Lytton | |
| | |
| | | |
| 3,500 | | |
| 3,500 | |
Joel Oppenheim | |
| | |
| | | |
| — | | |
| 161,900 | |
Joel Oppenheim | |
| | |
| | | |
| — | | |
| 15,000 | |
Joel Oppenheim | |
| | |
| | | |
| — | | |
| 240,000 | |
Credit note VII | |
| | |
| | | |
| 416,900 | | |
| — | |
Origin Bank (PPP loan) | |
| | |
| | | |
| — | | |
| 56,680 | |
Quinten Beasley | |
| | |
| | | |
| 5,000 | | |
| — | |
Jovian Petroleum Corporation | |
| | |
| | | |
| 178,923 | | |
| — | |
M. Horowitz | |
| | |
| | | |
| 10,000 | | |
| 10,000 | |
Current portion of notes payable | |
| | |
| | | |
$ | 3,363,524 | | |
$ | 3,037,737 | |
|
(i) |
On
January 6, 2017, the Company purchased a truck and entered into an installment note in the amount of $35,677 for a term of five years
and interest at 5.49% per annum. Payments of principal and interest in the amount of $683 are due monthly. |
|
(ii) |
On
May 9, 2018, Bow entered into an Amended and Restated Loan Agreement with a third party. The Loan Agreement increased by $800,000
the amount of a previous loan agreement entered into between Bow and the Lender, to $1,530,000. The amount owed under the Loan Agreement
accrues interest at the rate of 12% per annum (19% upon the occurrence of an event of default) and is due and payable on May 11,
2021, provided that the amount owed can be prepaid prior to maturity, beginning 60 days after the date of the Loan Agreement, provided
that the Company gives the Lender 10 days’ notice of our intent to repay and pays the Lender the interest which would have
been due through the maturity date at the time of repayment. The Loan Agreement contains standard and customary events of default,
including cross defaults under other indebtedness obligations of us and Bow, and the occurrence of any event which would have a material
adverse effect on us or Bow. The Company is required to make principal payments of $10,000 per month from January through September
2019 with the remaining balance of $710,000 due at maturity on May 11, 2021. The additional $800,000 borrowed in connection with
the entry into the Loan Agreement was used by the Company to acquire a 25% working interest in approximately 41,526 acres located
in the Luseland, Hearts Hill, and Cuthbert fields, located in Southwest Saskatchewan and Eastern Alberta, Canada (collectively, the
“Canadian Properties” and the “Working Interest”). Upon the disposition of Bow, a total of $730,000 of the
obligations owed under the Loan Agreement were transferred to Blue Sky Resources Ltd. (“Blue Sky”). |
|
|
|
|
|
In
order to induce the Lender to enter into the Loan Agreement, the Company agreed to issue the Lender 500,000 shares of restricted
common stock (the “Loan Shares”), which were issued on May 18, 2018, and warrants to purchase 2,320,000 shares of common
stock (the “Loan Warrants”), of which warrants to purchase (a) 320,000 shares of common stock have an exercise price
of $0.10 per share in Canadian dollars and expire in May 15, 2021, (b) 500,000 shares of common stock have an exercise price of $0.12
per share in U.S. dollars, and expire on May 15, 2021; and (c) 1,500,000 shares of common stock have an exercise price of $0.10 per
share in U.S. dollars and expire on May 15, 2020. The fair value of the 500,000 common shares issued were assessed at the market
price of the stock on the date of issuance and valued at $47,500. The fair value of the Canadian dollar denominated warrants issued
were assessed at $30,012 using the Black Scholes Option Pricing Model. The fair value of the U.S. dollar denominated warrants issued
were assessed at $182,650 using the Black Scholes Option Pricing Model. The Company determined the debt modification to be an extinguishment
of debt and recorded a total loss on extinguishment of debt of $260,162. |
|
|
|
|
|
On
January 1, 2021, the Lender signed an amended loan agreement, which moved the balance of this note to credit note VI. More details
can be found in footnote (vii). |
|
|
|
|
(iii) |
On
September 17, 2018, the Company entered into a loan agreement with a third party for $200,000 to acquire an additional 3% working
interest in the Canadian Properties. The loan bears interest at 12% per annum and has a maturity date of October 17, 2019. Payments
of principal and interest in the amount of $6,000 are due monthly. The loan is secured against the Company’s 3% working interest
in the Canadian Properties and has no financial covenants. During 2020, the LOC balance increased by $146,000 resulting in a $346,038
ending balance. On January 1, 2021, the Lender signed an amended loan agreement, which moved the balance of this note to credit note
VI. More details can be found in footnote (vi) and (vii). |
|
|
|
|
(iv) |
On
April 25, 2019, the Company entered into a promissory note (an “Acquisition Note”) with a third-party in the amount of
$750,000 to acquire working interests in the Utikuma oil field in Alberta Canada. The Note bears interest at 9% per annum and is
due in full at maturity on April 25, 2021. No payments are required on the note until maturity while interest is accrued. In addition,
warrants to purchase 500,000 shares of common stock with an exercise price of $0.12 per share expiring on May 1, 2021, were issued
associated with the note. The fair value of issued warrants were recorded as a debt discount of $38,249 and amortization of $8,366.
The notes hold a security guarantee of working interest in the Utikuma oil field and a working interest in the TLSAU field. On January
1, 2021, the Lender signed an amended loan agreement, which moved the balance of this note to credit note V. More details can be
found in footnote (vi). |
|
|
|
|
(v) |
On
January 2, 2020, the Company entered into a loan agreement in the amount of $1,000,000 with a third party (including a $120,000 origination
fee). The note bore interest at an interest rate of $10% per annum and matures on June 30, 2020, with warrants to purchase 5,000,000
shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire
on January 2, 2023. The fair value of issued warrants were recorded as a debt discount of $266,674 and monthly amortization of $11,111.
These funds were initially placed in escrow, then on May 29, 2020, they were used for the purchase of the Utikuma oil field. Pursuant
to a loan extension agreement, on October 30, 2020, the Company issued warrants to purchase 5,000,000 of common stock, at an exercise
price of $0.05 per share, expiring on January 6, 2023. The fair value of the issued warrants was recorded as a debt discount of $166,289
and monthly amortization of $4,614.14. |
|
|
|
|
(vi) |
On
January 1, 2021, the Company signed an amended loan agreement with a third party for $918,049, which combined credit note III along
with $146,038 of credit note II and accrued interest on those amounts. The loan bears interest at 10% per annum and has a maturity
date of December 31, 2021. The warrants associated with credit note III are applied as a discount to the amended loan. The note holds
a security guarantee of a working interest in the Utikuma oil field and a working interest in the TLSAU field. |
|
|
|
|
(vii) |
On
January 1, 2021, the Company signed an amended loan agreement with a third party for $1,133,104, which combined credit note I along
with $200,000 of credit note II and accrued interest on those amounts. The loan bears interest at 10% per annum and has a maturity
date of December 31, 2021. The note holds a security interest against the 25% Working Interest in the Cona assets. |
|
|
|
|
(viii) |
Various
shareholder advances provided by Mr. Oppenheim during 2018 and 2019. There were no formal documents drawn. Interest rates were applied
based on other similar loan agreements entered into by the Company during that period. On February 12, 2021, the Company entered
into an amended loan agreement in the amount of $416,900 that consolidated these amounts. The loan bears interest at 10% per annum
and has a maturity date of December 31, 2021. |
|
|
|
|
(ix) |
On
April 23, 2020, the Company was granted a $56,680 business loan through the Paycheck Protection Program (PPP) administered through
the CARES act. The loan amount was based 2.5 times the Company’s average monthly payroll costs. The company applied for loan
forgiveness, and it was granted on July 26, 2021. |
|
|
|
|
(x) |
On
February 9, 2018, the Company entered into a Revolving Line of Credit Agreement (“LOC”) for $200,000 (subsequently increased
to $500,000 on April 12, 2018) with Jovian Petroleum Corporation (“Jovian”). The CEO of Jovian is Quinten Beasley, our
former director (resigned October 31, 2018), and 25% of Jovian is owned by Zel C. Khan, our former CEO and director. The initial
agreement was for a period of 6 months, and it can be extended for up to 5 additional terms of 6 months each. All amounts advanced
pursuant to the LOC will bear interest from the date of advance until paid in full at 3.5% simple interest per annum. Interest will
be calculated on a basis of a 360-day year and charged for the actual number of days elapsed. Subsequent to period-end this LOC has
been extended until December 31, 2021. As of September 1, 2021, Zel Khan and Quinten Beasley resigned from their positions at Petrolia
Energy, so this note has been removed from the related party section. |
The
following is a schedule of future minimum repayments of notes payable as of September 30, 2021:
SCHEDULE OF FUTURE MINIMUM REPAYMENTS OF NOTES PAYABLE
| |
| | |
2021 | |
$ | 3,507,717 | |
Thereafter | |
| — | |
Total | |
$ | 3,507,717 | |
NOTE
7. RELATED PARTY NOTES PAYABLE
The
following table summarizes the Company’s related party notes payable:
SCHEDULE OF RELATED PARTY NOTES PAYABLE
| |
| | |
| |
Balance at: | |
| |
Interest rate | | |
Date of maturity | |
September 30, 2021 | | |
December 31, 2020 | |
Quinten Beasley | |
10 | % | |
October 14, 2016 | |
$ | — | | |
$ | 5,000 | |
Jovian Petroleum Corporation (i) | |
3.5 | % | |
December 31, 2021 | |
| — | | |
| 188,285 | |
Ivar Siem (ii) | |
12 | % | |
On demand | |
| — | | |
| 200,000 | |
Ivar Siem (ii) | |
Non-interest | | |
On demand | |
| — | | |
| 50,000 | |
Ivar Siem (ii) | |
9 | % | |
December 31, 2021 | |
| 278,435 | | |
| — | |
Mark M Allen (iii) | |
9 | % | |
September 2, 2021 | |
| 55,000 | | |
| 55,000 | |
Mark M Allen (iv) | |
10 | % | |
June 30, 2021 | |
| | | |
| 135,000 | |
Mark M Allen (v) | |
12 | % | |
June 30, 2021 | |
| 200,000 | | |
| 200,000 | |
Mark M Allen (vi) | |
10 | % | |
June 30, 2020 | |
| — | | |
| 100,000 | |
Discount on Mark M Allen ($100K) | |
| | |
| |
| — | | |
| (11,536 | ) |
Mark M Allen (vi) | |
10 | % | |
June 30, 2020 | |
| — | | |
| 125,000 | |
Discount on Mark M Allen ($125K) | |
| | |
| |
| — | | |
| (11,420 | ) |
Mark Allen (vi) | |
9 | % | |
June 30, 2021 | |
| 245,938 | | |
| — | |
| |
| | |
| |
$ | 779,373 | | |
$ | 1,035,329 | |
|
(i) |
On
February 9, 2018, the Company entered into a Revolving Line of Credit Agreement (“LOC”) for $200,000 (subsequently increased
to $500,000 on April 12, 2018) with Jovian Petroleum Corporation (“Jovian”). The CEO of Jovian is Quinten Beasley, our
former director (resigned October 31, 2018), and 25% of Jovian is owned by Zel C. Khan, our former CEO and director. The initial
agreement was for a period of 6 months, and it can be extended for up to 5 additional terms of 6 months each. All amounts advanced
pursuant to the LOC will bear interest from the date of advance until paid in full at 3.5% simple interest per annum. Interest will
be calculated on a basis of a 360-day year and charged for the actual number of days elapsed. Subsequent to period-end this LOC has
been extended until December 31, 2021. On September 1, 2021, Zel Khan and Quinten Beasley resigned from their positions at Petrolia
Energy, so this note has been removed from the related party section. |
|
|
|
|
(ii) |
On
August 15, 2019, the Company entered into a loan agreement in the amount of $75,000 with Ivar Siem. The note bears interest at an
interest rate of 12% per annum with a four (4) month maturity. On December 4, 2019, the Company entered into a loan agreement in
the amount of $100,000 with Ivar Siem. The note bears interest at an interest rate of 12% per annum with a six (6) month maturity.
At the maturity date, the note holder has the right to collect the principal plus interest or convert into 1,250,000 shares of common
stock at $0.08 per share. In addition, if converted, the note holder will also receive 5,000,000 warrants at an exercise price of
$0.10 per share, vesting immediately with a 36-month expiration period. On February 28, 2020, the Company entered into a $50,000
loan agreement with Ivar Siem. The note does not bear any interest (0% interest rate) and is due on demand. The note includes warrants
to purchase 200,000 shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian
dollars and expire on March 1, 2022. The warrants vest and will be issued on January 1, 2021. On January 1, 2021, the Company entered
into an amended loan agreement in the amount of $278,435, which combined the three previous loans, along with accrued interest. The
note bears an interest rate of 9% and matures on December 21, 2021. |
|
(iii) |
On
April 15, 2020, the Company entered into an agreement, with Mark Allen, that included a funding clause where the Company borrowed
$55,000 from Mr. Allen. The note bears interest at an interest rate of 9% per annum and matures on August 15, 2021. |
|
|
|
|
(iv) |
On
January 6, 2020, the Company entered into a consulting agreement, with Mark Allen, that included a funding clause where the Company
borrowed $135,000 ($62,000 on January 6, 2020, $45,000 on May 18, 2020, and $28,000 on June 26, 2020). The note bore interest at
an interest rate of 10% per annum and matured on June 30, 2020. On March 30, 2021, this note was settled with shares of the company.
More details can be found in Note 10. Equity. |
|
|
|
|
(v) |
During
2019, the Company entered into a loan agreement in the amount of $200,000 with Mark Allen. The note bears interest at an interest
rate of 12% per annum and matures on June 30, 2021. At the maturity date, the note holder has the right to collect the principal
plus interest or convert into 2,500,000 shares of common stock at $0.08 per share. In addition, upon conversion, the note holder
will also receive 10,000,000 warrants at an exercise price of $0.10 per share, vesting immediately with a 36-month expiration period.
|
|
|
|
|
(vi) |
On
January 3, 2020, the Company entered into a loan agreement in the amount of $100,000 with Mark Allen. The note bears interest at
an interest rate of $10% per annum and matures on June 1, 2020, with warrants to purchase 400,000 shares of common stock (the “Loan
Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire on January 3, 2023. The fair value of issued
warrants were recorded as a debt discount of $31,946 and monthly amortization of $1,775. On February 14, 2020, the Company entered
into a loan agreement in the amount of $125,000 with Mark Allen. The note bears interest at an interest rate of 10% per annum and
matures on June 1, 2020, with warrants to purchase 750,000 shares of common stock (the “Loan Warrants”), at an exercise
price of $0.10 per share in Canadian dollars and expire on February 14, 2022. The fair value of issued warrants were recorded as
a debt discount of $38,249 and monthly amortization of $1,903. On January 1, 2021, the Company entered into an amended loan agreement
in the amount of $245,938, which combined the two previous loans, along with accrued interest. The note bears an interest rate of
9% and matures on June 30, 2021. |
The
following is a schedule of future minimum repayments of related party notes payable as of September 30, 2021:
SCHEDULE OF FUTURE MINIMUM REPAYMENTS OF RELATED PARTY NOTES PAYABLE
| |
| | |
2021 | |
$ | 779,373 | |
Thereafter | |
| — | |
Total | |
$ | 779,373 | |
NOTE
8. DERIVATIVE FINANCIAL INSTRUMENTS
On
May 18, 2018, as an inducement to enter into an Amended and Restated Loan Agreement, the Company issued, among other instruments, warrants
to acquire 320,000 shares of common stock with an exercise price of $0.10 per share in Canadian dollars. The warrants are valued using
the Black Scholes Option Pricing Model and the derivative is fair valued at the end of each reporting period. The Company valued the
derivative liability at initial recognition as $30,012. These warrants expired on May 11, 2021.
On
January 06, 2020, as an inducement to enter into a Loan Agreement, the Company issued, among other instruments, warrants to acquire 5,000,000
shares of common stock with an exercise price of $0.10 per share. The warrants are valued using the Black Scholes Option Pricing Model
and the derivative is fair valued at the end of each reporting period. The Company valued the derivative liability at initial recognition
as $144,259.
On
October 30, 2020, as an inducement to extend the principal payment deadline from the previously issued Loan Agreement, the Company issued
additional warrants to acquire 5,000,000 shares of common stock with an exercise price of $0.10 per share. The warrants are valued using
the Black Scholes Option Pricing Model and the derivative is fair valued at the end of each reporting period. The Company valued the
derivative liability at initial recognition as $95,352.
A
summary of the activity of the derivative liabilities is shown below:
SCHEDULE OF DERIVATIVE LIABILITIES
As of December 31, 2020 | |
| 183,798 | |
Additions | |
| — | |
Fair value adjustment | |
| (160,189 | ) |
As of September 30, 2021 | |
$ | 23,609 | |
Derivative
liability classified warrants were valued using the Black Scholes Option Pricing Model with the range of assumptions outlined below.
Expected life was determined based on historical exercise data of the Company.
SCHEDULE OF DERIVATIVE LIABILITY OF FAIR VALUE ASSUMPTION
| |
September
30,
2021 | |
Risk-free interest rate | |
| 0.023
– 0.28 | % |
Expected life | |
| 1.26
– 1.27 years | |
Expected dividend rate | |
| 0 | % |
Expected volatility | |
| 340 | % |
NOTE
9. ASSET RETIREMENT OBLIGATIONS
The
Company has a number of oil and gas wells in production and will have Asset Retirement Obligations (“AROs”) once the wells
are permanently removed from service. The primary obligations involve the removal and disposal of surface equipment, plugging and abandoning
the wells and site restoration.
AROs
associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of
the related long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date of the working
interest. The cost of the tangible asset, including the asset retirement cost, is depleted over the life of the asset. AROs are recorded
at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted
at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities
are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the ARO
and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated discount
rates and changes in the estimated timing of abandonment.
The
Company’s ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include
estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well
as current estimated costs. For the Canadian properties, abandonment and reclamation liabilities are prescribed by the province in which
the Company operates in. For the purpose of determining the fair value of AROs incurred during the years presented, the Company used
the following assumptions:
SCHEDULE OF FAIR VALUE OF ASSET RETIREMENT OBLIGATIONS
|
|
|
September
30, 2021 |
|
Inflation
rate |
|
|
1.92
- 2.15 |
% |
Estimated
asset life |
|
|
12-21
years |
|
The
following table shows the change in the Company’s ARO liability:
SCHEDULE OF ASSET RETIREMENT OBLIGATIONS
| |
Canadian properties | | |
United States properties | | |
Total | |
Asset retirement obligations, December 31, 2019 | |
$ | 1,445,991 | | |
$ | 277,373 | | |
$ | 1,723,364 | |
Acquisition of Canadian property - Utikuma | |
| 906,146 | | |
| — | | |
| 906,146 | |
Plugging liability at Twin Lakes | |
| — | | |
| 606,109 | | |
| 606,109 | |
Accretion expense | |
| 259,016 | | |
| 28,742 | | |
| 287,758 | |
Foreign currency translations | |
| 100,756 | | |
| — | | |
| 100,756 | |
Asset retirement obligations, December 31, 2020 | |
| 2,711,909 | | |
| 912,224 | | |
| 3,624,133 | |
Accretion expense | |
| 255,879 | | |
| 19,632 | | |
| 275,511 | |
Foreign currency translation | |
| (6,420 | ) | |
| — | | |
| (6,420 | ) |
Asset retirement obligations, September 30, 2021 | |
$ | 2,961,368 | | |
$ | 931,856 | | |
$ | 3,893,224 | |
NOTE
10. EQUITY
Preferred
stock
The
holders of Series A Preferred Stock are entitled to receive cumulative dividends at a rate of 9% per annum. The Preferred Stock will
automatically convert into common stock when the Company’s common stock market price equals or exceeds $0.28 per share for 30 consecutive
days. At conversion, the value of each dollar of preferred stock (based on a $10 per share price) will convert into 7.1429 common shares
(which results in a $0.14 per common share conversion rate).
In
accordance with the terms of the Preferred Stock, cumulative dividends of $134,393 were declared for the nine months ended September
30, 2021, and $135,025 the nine months ended September 30, 2020.
Common
stock
As
of the year ended December 31, 2019, the Company closed private placements for $0.08 per unit for a total of 1,875,000 units and gross
proceeds of $150,000 (the “2019 Units”). Each 2019 Unit was comprised of one common share and two warrants entitling the
holder to exercise such warrant for one common share for a period of two years from the date of issuance. The warrants have exercise
price of $0.10 per share. See additional description of the detail transactions concerning those warrants in Note 11: Related Party Transactions,
below.
On
August 8, 2019, director Joel Martin Oppenheim exercised warrants to purchase 150,000 shares of common stock for cash proceeds of $15,000
at an exercise price of $0.10 per share. The shares were issued in January 2020.
On
August 14, 2019, director Joel Martin Oppenheim exercised warrants to purchase 10,000 shares of common stock for cash proceeds of $1,000
at an exercise price of $0.10 per share. The shares were issued in January 2020.
On
July 23, 2019, Joel Oppenheim, a related party, purchased 1 unit of the debt private placement with gross proceeds of $12,500. At maturity,
the holder has the option to either collect the principal or convert the balance into shares/warrants. The conversion would be for 156,250
shares of common stock and warrants to purchase 312,500 shares of common stock at a price of $0.08 per unit. The warrants fair value
was determined to be $15,517 via the Black Sholes Option Pricing Model. Consideration for the purchase was provided though a cash payment
of $2,500 as well as the forgiving of an outstanding bridge loan of $10,000. The shares were issued in January 2020.
On
January 20, 2020, Jovian Petroleum, a related party, purchased 1 unit of the debt private placement with gross proceeds of $12,500. At
maturity, the holder has the option to either collect the principal or convert the balance into shares/warrants. The conversion would
be for 156,250 shares of common stock and warrants to purchase 312,500 shares of common stock at a price of $0.08 per unit. Jovian Petroleum
converted the debt into shares during 2020.
On
February 29, 2020, the Company signed a consulting agreement with a third party to provide Management services related to the SUDS field.
The compensation related terms included the issuance of 250,000 shares of Common Stock. The shares were not issued and earned until December
15, 2020.
On
September 1, 2020, the Company entered into an agreement with Mark Allen, to serve as President for a period of six months (with monthly
extensions). The President was to earn a fee of $15,000 a month. It was understood that the monthly fees would be accrued until cashflow
permitted payment. Also, the President was issued a signing bonus of 2,000,000 shares of common stock. One million (1,000,000) shares
were to be issued upon signing and the remaining 1,000,000 shares are to be issued at a later date. In addition, the President was granted
warrants to purchase 1,000,000 shares of common stock exercisable at $0.08 per share equally vesting over 24 months. The warrants expire
in 36 months.
On
December 15, 2020, President Mark Allen exercised warrants to purchase 1,650,000 shares of common stock for cash proceeds of $69,375
at an average exercise price of $0.04 per share.
On
December 22, 2020, prior CFO Tariq Chaudhary was issued 500,000 shares of common stock. These shares were issued in exchange for Mr.
Chaudhary releasing the Company of his remaining deferred outstanding salary balance of $77,500. The shares were issued at an average
conversion price of $0.15 per share.
On
January 25, 2021, the Company signed an Executive Salary Payable Agreement with Zel Khan as the Chief Executive Officer. All of Mr. Khan’s
previous salary obligation was satisfied by the issuance of 1,992,272 shares of the Company on January 25, 2021.
Joel
Oppenheim, former Director, was issued 316,491 shares on January 25, 2021 pursuant to a Director’s Fees Payable Agreement. The
agreement stated that the shares were issued in full satisfaction of all outstanding director fees payable.
Paul
Deputy was reinstated Interim Chief Financial Officer and signed a Settlement and Mutual Release Agreement. In exchange for releasing
the Company for any current, outstanding payroll and/or service-related liability on January 29, 2021, the Company agreed to pay Mr.
Deputy $50,000, to be paid in $2,500 monthly increments, starting April 1, 2021. In addition, Mr. Deputy was issued 250,000 shares of
Petrolia common stock on January 29, 2021. The shares were issued at the price on that date of $0.033. This created a gain of $134,270
that was recorded as additional paid in capital, due to the related party nature of the transaction.
On
March 30, 2021, Mark Allen converted $30,000 of unpaid contract wages from early 2020 into 333,333 common shares of common stock. A conversion
price of $0.09 per share was used to determine the number of shares.
On
March 30, 2021, Mark Allen converted a defaulted secured loan of $135,000 as well as $135,000 of guaranteed return that was due on December
15, 2019. The conversion consisted of 5,400,000 shares of common stock and 5,400,000 warrants to purchase common stock. The warrants
have a strike price of $0.08 per share and expire in 36 months.
More
details on the transactions above can be found in Note 11. Related Party Transactions.
The
common stock of Petrolia Energy Corporation is currently not actively traded because of SEC Rule 15c2-11.
Warrants
On
September 24, 2015, the Board of Directors of the Company approved the adoption of the 2015 Stock Incentive Plan (the “Plan”).
The Plan provides an opportunity, subject to approval of our Board of Directors, of individual grants and awards, for any employee, officer,
director or consultant of the Company. The maximum aggregate number of shares of common stock which may be issued pursuant to awards
under the Plan, as amended on November 7, 2017, was 40,000,000 shares. The plan was ratified by the stockholders of the Company on April
14, 2016.
Continuity
of the Company’s common stock purchase warrants issued and outstanding is as follows:
SCHEDULE OF COMMON STOCK PURCHASE WARRANTS ISSUED AND OUTSTANDING
| |
Warrants | | |
Weighted Average Exercise Price | |
Outstanding at year ended December 31, 2019 | |
| 57,043,836 | | |
$ | 0.14 | |
Granted | |
| 18,650,000 | | |
| 0.15 | |
Exercised | |
| (1,650,000 | ) | |
| 0.08 | |
Expired | |
| (33,279,170 | ) | |
| 0.19 | |
Outstanding at December 31, 2020 | |
| 40,764,666 | | |
$ | 0.13 | |
Granted | |
| 8,400,000 | | |
| 0.09 | |
Expired | |
| (17,964,666 | ) | |
| 0.11 | |
Outstanding at September 30, 2021 | |
| 31,200,000 | | |
$ | 0.13 | |
As
of September 30, 2021, the weighted-average remaining contractual life of warrants outstanding was 1.57 years (December 31, 2020 –
1.39 years).
As
of September 30, 2021, the intrinsic value of warrants outstanding is $0.00 (December 31, 2020 - $0.00).
The
table below summarizes warrant issuances during the nine months ended September 30, 2021, and year ended December 31, 2020:
SCHEDULE OF WARRANTS ISSUANCE DURING PERIOD
| |
September 30, 2021 | | |
December 31, 2020 | |
Warrants granted: | |
| | | |
| | |
Board of Directors and Advisory Board service | |
| 2,250,000 | | |
| 5,250,000 | |
Pursuant to employment agreements | |
| — | | |
| 1,000,000 | |
Pursuant to financing arrangements | |
| 750,000 | | |
| 1,000,000 | |
Pursuant to consulting agreements | |
| — | | |
| 250,000 | |
Pursuant to loan agreements | |
| — | | |
| 11,150,000 | |
Pursuant to extinguishment of debt | |
| 5,400,000 | | |
| — | |
Total | |
| 8,400,000 | | |
| 18,650,000 | |
The
warrants were valued using the Black Scholes Option Pricing Model with the range of assumptions outlined below. Expected life was determined
based on historical data of the Company.
SCHEDULE OF FAIR VALUE OF ASSUMPTION OF WARRANTS
| |
September
30, 2021 | | |
December
31, 2020 | |
Risk-free interest rate | |
| 0.22%
to 0.53 | % | |
| 1.65%
to 2.38 | % |
Expected life | |
| 2.0
to 3.0 years | | |
| 1.0
to 3.0 years | |
Expected dividend rate | |
| 0 | % | |
| 0 | % |
Expected volatility | |
| 310%
to 356 | % | |
| 240%
to 274 | % |
NOTE
11. RELATED PARTY TRANSACTIONS
On
January 20, 2020, Jovian Petroleum, a related party, purchased 1 unit of the debt private placement with gross proceeds of $12,500. At
maturity, the holder has the option to either collect the principal or convert the balance into shares/warrants. The conversion would
be for 156,250 shares of common stock and warrants to purchase 312,500 shares of common stock at a price of $0.08 per unit. Jovian Petroleum
converted the debt into shares during 2020.
On
May 29, 2020, Petrolia Energy Corporation acquired a 50% working interest in approximately 28,000 net working interest acres located
in the Utikuma Lake area in Alberta, Canada. The property is an oil-weighted asset currently producing approximately 500 bopd of light
oil. The working interest was acquired from Blue Sky Resources Ltd. in an affiliated party transaction as Zel C. Khan, the Company’s
former Chief Executive Officer, is related to the ownership of Blue Sky. Blue Sky acquired a 100% working interest in the Canadian Property
from Vermilion Energy Inc. via Vermilion’s subsidiary Vermilion Resources. The effective date of the acquisition was May 1, 2020.
The total purchase price of the property was $2,000,000 (CND), with $1,000,000 of that total due initially. The additional $1,000,000
was contingent on the future price of WTI crude. At the time WTI price exceeded $50/bbl, the Company would pay an additional $750,000.
In addition, at the time WTI price exceeded $57/bbl the Company would pay an additional $250,000 (for a cumulative contingent total of
$1,000,000). The price of WTI crude exceeded $50/bbl on January 6, 2021, and exceeded $57/bbl on February 8, 2021. The additional payments
due were netted with the accounts receivable balance from previous Joint Interest Billing statements from BSR. The total $USD value of
the addition was $787,250, using prevailing exchange rates on the respective dates. Included in the terms of the agreement, the Company
also funded their portion of the Alberta Energy Regulator (“AER”) bond fund requirement ($599,444 USD), necessary for the
wells to continue in production after the acquisition. Additional funds ($385,075 USD) remain in the other current asset balance for
future payments to BSR, related to the acquisition.
On
September 1, 2020, the Company entered into an agreement with Mark Allen, to serve as President for a period of six months (with monthly
extensions). The President was to earn a fee of $15,000 a month. It was understood that the monthly fees would be accrued until cashflow
permitted payment. Also, the President was issued a signing bonus of 2,000,000 shares of common stock. One million (1,000,000) shares
were to be issued upon signing and the remaining 1,000,000 shares are to be issued at a later date. In addition, the President was granted
warrants to purchase 1,000,000 shares of common stock exercisable at $0.08 per share equally vesting over 24 months. The warrants expire
in 36 months.
On
December 15, 2020, President Mark Allen exercised warrants to purchase 1,650,000 shares of common stock for cash proceeds of $69,375
at an average exercise price of $0.04 per share.
On
December 15, 2020, in accordance with Mark Allen’s Consulting agreement, the Company issued Mr. Allen 250,000 shares of common
stock as part of the compensation terms of that agreement.
On
December 22, 2020, prior CFO Tariq Chaudhary was issued 500,000 shares of common stock. These shares were issued in exchange for Mr.
Chaudhary releasing the Company of his remaining deferred outstanding salary balance of $77,500. The shares were issued at an average
conversion price of $0.15 per share.
On
January 7, 2021, prior Board Member Joel Oppenheim was issued 316,491 shares of common stock. These shares were in exchange for Mr. Oppenheim
releasing the Company of his remaining board compensation balance of $60,000. The shares were issued at the price on that date of $0.02.
This created a gain of $53,670 that was recorded as additional paid in capital, due to the related party nature of the transaction.
On
January 11, 2021, prior CEO Zel Khan was issued 1,992,272 shares of common stock. These shares were in exchange for Mr. Khan releasing
the Company of his remaining deferred outstanding salary balance of $325,000. The shares were issued at the price on that date of $0.025.
This created a gain of $275,193 that was recorded as additional paid in capital, due to the related party nature of the transaction.
On
January 29, 2021, prior CFO Paul Deputy was reinstated as Interim Chief Financial Officer, and signed an agreement that in exchange for
250,000 shares of common stock and 20 monthly payments of $2,500 starting in April 2021, he would release the Company of his remaining
deferred outstanding salary balance of $192,520.04. The shares were issued at the price on that date of $0.033. This created a gain of
$134,270 that was recorded as additional paid in capital, due to the related party nature of the transaction.
On
March 30, 2021, President Mark Allen was issued 333,333 shares of common stock. A conversion price of $0.09 per share was used to determine
the number of shares. These shares were in exchange for Mr. Allen releasing the company of an outstanding consulting fee balance of $30,000.
The shares were issued at the price on that date of $0.033. This created a gain of $19,001 that was recorded as additional paid in capital,
due to the related party nature of the transaction.
On
March 31, 2021, President Mark Allen was issued 5,400,000 shares of common stock. These shares were in exchange for Mr. Allen releasing
the company of an outstanding loan of $135,000 and outstanding guaranteed return on that loan of $135,000. The shares were issued at
the price on that date of $0.033. In addition, the president was granted warrants to purchase 5,400,000 shares of common stock at $0.08,
vesting immediately. The warrants expire in 36 months. The warrants were valued at $200,378 using the Black Sholes method. This created
a loss of $108,578 that was recorded as a reduction to additional paid in capital, due to the related party nature of the transaction.
On August 21,2021, the Company signed a Letter Agreement
to divest the Company’s wholly owned Canada subsidiary, Petrolia Canada Corporation (PCC) and its assets in consideration for $6,500,000
in Canadian dollars (approximately $5,150,000 in U.S. dollars) less any contingent liabilities. The buyer is Blue Sky Resources Ltd. (“Blue
Sky”), an affiliated party to Zel C. Khan, the Company’s former Chief Executive Officer. Petrolia Canada Corporation assets
include a 50% working interest in approximately 28,000 acres located in the Utikuma Lake area in Alberta, Canada, and 28% working interest
in the Luseland, Hearts Hill, and Cuthbert fields located in Southwest Saskatchewan and Eastern Alberta. The Company received a non-refundable
deposit of $200,000 CND on August 31, 2021. The remaining payment schedule is as follows: $2,000,000 CND on the Closing Date (scheduled
for September 30, 2021), $1,000,000 CND on October 31, 2021, less Petrolia’s contingent liabilities associated with the acquisition
of Utikuma, and $3,300,000 CND on December 31, 2021. See Form 8-K reference in Exhibits section below. This transaction did not close,
and the $200,000 CND was recognized as other income in the fourth quarter of 2021.
NOTE
12. SEGMENT REPORTING
The
Company has a single reportable operating segment, Oil and Gas Exploration and Production, which includes exploration, development, and
production of current and potential oil and gas properties. Results of operations from producing activities were as follows:
SCHEDULE OF LONG-LIVED ASSETS
| |
Canada | | |
United States | | |
Total | |
Nine months ended September 30, 2021 | |
| | | |
| | | |
| | |
Revenue | |
$ | 4,042,133 | | |
$ | 12,175 | | |
$ | 4,054,313 | |
Production costs | |
| (3,670,999 | ) | |
| (56,924 | ) | |
| (3,727,923 | ) |
Depreciation, depletion, amortization and accretion | |
| (815,521 | ) | |
| (38,870 | ) | |
| (854,391 | ) |
Loss
on TLSAU abandonment | |
| - | | |
| | | |
| | |
Results of operations from producing activities | |
$ | (444,382 | ) | |
$ | (83,619 | ) | |
$ | (528,001 | ) |
| |
| | | |
| | | |
| | |
Total long-lived assets, September 30, 2021 | |
$ | 1,917,164 | | |
$ | 4,249,789 | | |
$ | 6,166,953 | |
| |
| | | |
| | | |
| | |
Nine months ended September 30, 2020 | |
| | | |
| | | |
| | |
Revenue | |
$ | 1,935,861 | | |
$ | 8,005 | | |
$ | 1,943,866 | |
Production costs | |
| (2,273,505 | ) | |
| (189,674 | ) | |
| (2,463,179 | ) |
Depreciation, depletion, amortization, and accretion | |
| (1,030,549 | ) | |
| (45,193 | ) | |
| (1,075,742 | ) |
Loss on TLSAU abandonment | |
| — | | |
| (3,225,928 | ) | |
| (3,225,928 | ) |
Results of operations from producing activities | |
$ | (1,368,193 | ) | |
$ | (3,452,790 | ) | |
$ | (4,820,983 | ) |
| |
| | | |
| | | |
| | |
Total long-lived assets, September 30, 2020 | |
$ | 1,957,126 | | |
$ | 7,096,763 | | |
$ | 9,053,889 | |
NOTE
13. SUBSEQUENT EVENTS
On August 21, 2021, the Company signed a Letter
Agreement to divest the Company’s wholly owned Canada subsidiary, Petrolia Canada Corporation (PCC) and its assets in
consideration for $6,500,000 in Canadian dollars (approximately $5,150,000 in U.S. dollars) less any contingent liabilities. The
buyer is Blue Sky Resources Ltd. (“Blue Sky”), an affiliated party to Zel C. Khan, the Company’s former Chief
Executive Officer. Petrolia Canada Corporation assets include a 50% working interest in approximately 28,000 acres located in the
Utikuma Lake area in Alberta, Canada, and 28% working interest in the Luseland, Hearts Hill, and Cuthbert fields located in
Southwest Saskatchewan and Eastern Alberta. The Company received a non-refundable deposit of $200,000 CND on August 31, 2021. The
remaining payment schedule is as follows: $2,000,000 CND on the Closing Date (scheduled for September 30, 2021), $1,000,000 CND on
October 31, 2021, less Petrolia’s contingent liabilities associated with the acquisition of Utikuma, and $3,300,000 CND on
December 31, 2021. See Form 8-K reference in Exhibits section below. This transaction did not close, and the $200,000 CND was
recognized as other income in the fourth quarter of 2021.
In
October and November of 2021 and January of 2022, the Company entered into various subscription agreements to sell an aggregate amount
of 11,000 shares of its newly designated Series C Convertible Preferred Stock at $10 per share. See Form 8-K filing reference in Exhibits
section below.
On
October 25, 2021, the Company issued one share each of its newly designated shares of Series B Preferred Stock to Board of Directors
members James Burns, Leo Womack, and Ivar Siem. These shares vote in aggregate sixty percent of the total vote on all shareholder matters.
See Form 8-K filing reference in Exhibits section below.
On
December 30, 2021, the Company reached a settlement with Argonaut Insurance Company (Argo), regarding a final judgement of $52,749 that
had been issued on March 6, 2018. The company paid Argo a lump sum of $15,000 in full satisfaction of the original judgement. See From
8-K reference in Exhibits section below.
On
February 16, 2022, the Company entered into both a Purchase and Sale Agreement and a Debt Settlement Agreement with Prospera Energy.
Prospera agreed to purchase the Company’s twenty-eight percent (28%) working interest in the Cuthbert, Luseland and Heart Hills
assets in Saskatchewan and Alberta. Under these agreements Prospera will forgive $1,720,613 in accounts payable from the Company, arising
from joint interest billings. Prospera will also issue a $510,000 convertible debenture to Petrolia Canada, which can be converted to
common share units. Lastly, Prospera will pay the Company $75,000 CND in five equal installments. See Form 8-K reference in Exhibits
section below.
On
March 11, 2022, the Company filed a lawsuit in Harris County Texas against Jovian Petroleum Corporation, Zel Khan and Quinten Beasley.
The lawsuit claims fraud and breach of contract against all named defendants, as well as breach of fiduciary duty claims against Zel
Khan and Quinten Beasley. See Form 8-K reference in Exhibits section below.
On
March 16, 2022, Petrolia Canada Corporation received a Notice of Intention to Retain Collateral Pursuant to Section 62 of the Personal
Property Security Act (Alberta) from the counsel of Blue Sky Resources Ltd. related to a Loan Agreement and General Security Agreement
between Petrolia Canada Corporation and Emmett Lescroart. Petrolia Canada Corporation was notified that Blue Sky Resources Ltd., as assignee
of the Emmet Lescroart loan, intends to retain the Utikuma loan collateral pursuant to the General Security Agreement with Petrolia Canada
Corporation. On March 30, 2022, Petrolia Canada Corporation’s counsel responded to Blue Sky Resources, Ltd. with a Notice of Objection.
On
January 28, 2022, the Securities and Exchange Commission filed an Order Instituting Administrative Proceedings and Notice of Hearing
Pursuant to Section 12(j) of the Securities Exchange Act of 1934 to suspend for a period not exceeding twelve months or revoke the registration
of each class of securities registered pursuant to Section 12 of the Exchange Act of the Company. The Division of Enforcement at the
Securities and Exchange Commission (the “Division”) filed a Motion for Summary Disposition in this matter and the Company
filed a Response to the Motion for Summary Disposition in April 2022. On May 5, 2022, the Division filed its Response in Support of its
Motion for Summary Disposition.
On
June 13, 2022, a Letter Agreement was signed between Blue Sky Resources Ltd. (“BSR”) and Petrolia Energy Corporation whereby
Petrolia Canada Corporation (“PCC”) will sell to Blue Sky Resources its 50% working interest in the Utikuma Lake oil field.
See Form 8-K reference in Exhibits section below.
Effective
June 15, 2022, Heather Monk was promoted from Corporate Controller to Interim Chief Financial Officer.
FORWARD
LOOKING STATEMENTS
This
Report contains statements which, to the extent that they do not recite historical fact, constitute forward-looking statements. These
statements can be identified by the fact that they do not relate strictly to historical or current facts and may include the words “may,”
“will,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,”
“estimate,” “intend,” “plan” or other words or expressions of similar meaning. We have based these
forward-looking statements on our current expectations about future events. The forward-looking statements include statements that reflect
management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition,
results of operations, future performance and business, including statements relating to our business strategy and our current and future
development plans.
The
potential risks and uncertainties that could cause our actual financial condition, results of operations and future performance to differ
materially from those expressed or implied in this report include:
|
● |
The
sale prices of crude oil; |
|
● |
The
amount of production from oil wells in which we have an interest; |
|
● |
Lease
operating expenses; |
|
● |
International
conflict or acts of terrorism; |
|
● |
General
economic conditions; and |
|
● |
Other
factors disclosed in this report. |
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level
of activity, performance or achievements. Many factors discussed in this report, some of which are beyond our control, will be important
in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from the
forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement
in this Report as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such
forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
You
should read the matters described in “Risk Factors” and the other cautionary statements made in, and incorporated by reference
in, this Report as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you
that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to
place undue reliance on forward-looking statements. Other than as required by law, we undertake no obligation to update or revise these
forward-looking statements, even though our situation may change in the future.
Please
see the “Glossary of Oil and Gas Terms” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with
the SEC on May 16, 2022 (the “2020 Annual Report”) for a list of abbreviations and definitions used throughout this Report.
This
information should be read in conjunction with the unaudited condensed consolidated interim financial statements and the notes thereto
included in this Quarterly Report on Form 10-Q and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations contained in our 2020 Annual Report.
Certain
capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated
financial statements included above under “Part I – Financial Information” – “Item 1. Consolidated Financial
Statements”.
Unless
the context requires otherwise, references to the “Company,” “we,” “us,” “our,”
“Petrolia” and “Petrolia Energy Corp.” refer specifically to Petrolia Energy Corp. and its wholly
owned subsidiaries.
In
addition, unless the context otherwise requires and for the purposes of this Report only:
|
● |
“Bbl”
refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this Report in reference to crude oil or other liquid
hydrocarbons; |
|
● |
“Boe”
refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate, or natural gas liquids, to six
Mcf of natural gas; |
|
● |
“Mcf”
refers to a thousand cubic feet of natural gas; |
|
● |
“SEC”
or the “Commission” refers to the United States Securities and Exchange Commission; and |
|
● |
“Securities
Act” refers to the Securities Act of 1933, as amended. |