UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): June 29, 2018 

 

Petrolia Energy Corporation

(Exact name of registrant as specified in its charter)

 

Texas 000-52690 86-1061005
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)

 

710 N. Post Oak Rd., Ste. 512, Houston, Texas 77024
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 832-941-0011

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17CFR 230.425)
   
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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 pursuant to Section 13(a) of the Exchange Act.  ☐

     
 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Effective on June 29, 2018, Petrolia Energy Corporation (the “ Company ”, “ we ” and “ us ”), acquired 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 ”). The Canadian Properties currently encompass 64 sections, with 240 oil and 12 natural gas wells currently producing on the properties. Additionally, there are several idle wells with potential for reactivation and 34 sections of undeveloped land (approximately 21,760 acres).

 

The Canadian Properties were acquired from Blue Sky Resources Ltd. (“ Blue Sky ”), whose President is Ilyas Chaudhary, the father of Zel C. Khan, the Company’s Chief Executive Officer. Blue Sky is the largest shareholder of the Company.

 

Blue Sky had previously acquired an 80% working interest in the Canadian Properties from Georox Resources Inc., who had acquired the Canadian Properties from Cona Resources Ltd. and Cona Resources Partnership prior to the acquisition by the Company. The effective date of the acquisition was June 1, 2018.

 

The acquisition of the Canadian Properties was evidenced and documented by a Memorandum of Understanding between the Company and Blue Sky dated June 29, 2018 and a Conveyance between the parties dated as of the same date, pursuant to which the Company agreed to acquire the Working Interest in consideration for $1,428,581 in Canadian dollars (“ CAD ”) (approximately $1,089,150 in U.S. dollars) of which CAD $1,022,400 (approximately $779,478 in U.S. dollars) was paid in cash (the “ Cash Payment ”) and CAD $406,181 (approximately $309,672 in U.S. dollars) was evidenced by a promissory note (the “ Acquisition Note ”).

 

The Cash Payment was made with funds borrowed by the Company pursuant to the terms of that certain $1,530,000 May 9, 2018, Amended and Restated Loan Agreement entered into with our wholly-owned subsidiary, Bow Energy Ltd (“ Bow ”) and a third party (the “ Loan Agreement ” and the “ Lender ”). 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.

 

The Working Interest is held in the name of the Company’s newly formed wholly-owned Alberta, Canada, subsidiary, Petrolia Canada Corporation.

 

The Acquisition Note, which was dated June 8, 2018, bears interest at the rate of 9% per annum, beginning on August 1, 2018 and is due and payable on November 30, 2018, provided that we have the right to extend the maturity date for a period six months with 10 days’ notice to Blue Sky, in the event we pay 25% of the principal amount of the Acquisition Note at the time of extension.

 

The foregoing description of the Memorandum of Understanding, Conveyance and Acquisition Note, do not purport to be complete and are qualified in their entirety by reference to the Memorandum of Understanding, Conveyance and Acquisition Note, copies of which are attached as Exhibits 10.1, 10.2 and 10.3 , respectively, to this Current Report on Form 8-K and incorporated herein by reference.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The description of the Acquisition Note above in  Item 1.01  is incorporated by reference into this  Item 2.03  in its entirety.

 

Item 8.01 Other Events

 

On July 6, 2018, the Company issued a press release discussing the matters disclosed in Item 1.01 above, which press release is included herewith as Exhibit 99.1 .

 

     
 

 

Item 9.01 Financial Statements and Exhibits

 

Exhibit No.   Description
     
10.1*   Memorandum of Understanding between Blue Sky Resources Ltd. and Petrolia Energy Corporation dated June 29, 2018
10.2*   Conveyance between Blue Sky Resources Ltd. and Petrolia Energy Corporation dated June 29, 2018
10.3*   CAD $406,181 Promissory Note by Petrolia Energy Corporation in favor of Blue Sky Resources Ltd. dated June 8, 2018
 99.1**   Press release dated July 6, 2018 

 

* Filed herewith.

** Furnished herewith. 

 

     
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

  Petrolia Energy Corporation
   
  /s/ Tariq Chaudhary
  Tariq Chaudhary

CFO

   
  Date: July 6, 2018

 

     
 

 

EXHIBIT INDEX

Exhibit No.   Description
     
10.1*   Memorandum of Understanding between Blue Sky Resources Ltd. and Petrolia Energy Corporation dated June 29, 2018
10.2*   Conveyance between Blue Sky Resources Ltd. and Petrolia Energy Corporation dated June 29, 2018
10.3*   CAD $406,181 Promissory Note by Petrolia Energy Corporation in favor of Blue Sky Resources Ltd. dated June 8, 2018
  99.1**   Press release dated July 6, 2018 

 

* Filed herewith.

** Furnished herewith.

 

     

 

Petrolia Energy Corporation 8-K

 

Exhibit 10.1

  

 

MEMORANDUM OF UNDERSTANDING

 

 

 

Between

 

Blue Sky Resources Ltd

 

And

 

“Petrolia”

 

June 29, 2018

 

 

 

     
 

 

 Memorandum of Understanding (“MOU”)

 

The following is Memorandum of understanding (“MOU”) between:

 

Blue Sky Resources Ltd, a private company, incorporated in Alberta Canada and with corporate office at 800 138 4 th Ave SE, Calgary, Alberta T2G 4Z6 (hereinafter referred to as “BSR”);

 

AND

 

Petrolia Canada Corporation, a wholly-owned subsidiary of Petrolia Energy Corporation headquartered at 710 N Post Oak Rd, Suite 512 Houston TX, 77024 (hereinafter referred to as “Petrolia”);

 

BSR and Petrolia may also sometimes be referred together as “Parties” or singularly as “Party”.

 

Whereas, Georox Resources Inc (“Georox”) has executed a Purchase and Sales Agreement (“PSA”) with Cona Resources Inc (“Cona”) to acquire certain properties in Alberta and Saskatchewan, Canada and referred herein as “Assets” and the PSA is attached herewith as Exhibit A: and

 

Whereas the Assets acquisition costs is C$5,654,324; and

 

Whereas BSR agreed to acquire 80% of the Assets for 80% of Georox cost and subsequently reduced its interest to 55% of the Assets; and

 

Whereas Petrolia desires to participate by acquiring 25% of the Assets for 25% of BSR’s cost as described in the executed Letter of Intent (“LOI”) attached herein as Exhibit B

 

     
 

 

NOW THEREFORE, in consideration of the foregoing recitals, the Parties enter this MOU under the terms and conditions as set forth below:

 

1. Purchase: 25% of the purchase price based upon Cona’s acceptable Closing Statement which is attached herewith as Exhibit C.
2. Effective date: Effective date is June 1 st , 2018.
3. Operator: Georox is the Operator of the Assets.
4. Closing: Upon receipt of full payment from Petrolia Closing shall be on June 29 th , 2018. The estimated closing costs is C$1,428,581, of which C$1,022,400 in cash has already been remitted and a Promissory note in the amount of C$406,181 has been executed. Petrolia shall receive title free and clear of liens and encumbrances upon execution of the terms of the Promissory note (Exhibit D).
5. Notices: A notice under this MOU must be in writing to the nominated address of the Parties written above.
6. Severability: The rights, duties, obligations and responsibilities of BSR and Petrolia are several and not joint or collective.
7. Confidentiality: The terms of this MOU must be held confidential by the Parties and shall not be divulged in any way to any third party by any one Party without the prior written approval of the other Party.
8. Choice of Law: This Agreement shall be governed by and construed in accordance with the laws of Alberta, Canada.
9. Amendments & expiry: This MOU may be amended only by mutual consents between the Parties. If any provision of this MOU becomes invalid or unenforceable, the validity of other provisions shall not be affected. This MOU will expire on the Closing Date.
10. No Partnership: Nothing in this MOU is intended to or shall be deemed to establish any partnership or joint venture between the Parties, constitute either Party as the agent of the other Party, nor authorize either of the Parties to make or enter into any commitments for or on behalf of the other Party.
11. Disclosure: BSR is a related Party to Petrolia.

 

IN WITNESS WHEREOF, the duly authorized representatives of the Parties have caused this Agreement to be executed on the date first written above.

 

 

 

     

 

Petrolia Energy Corporation 8-K

 

Exhibit 10.2

 

GENERAL CONVEYANCE

 

THIS CONVEYANCE made this 29 th day of June 2018.

 

AMONG:

 

Blue Sky Resources Ltd. a body corporate, having an office in the City of Calgary, in the Province of Alberta (hereinafter referred to as the "Blue Sky" or “Seller” )

 

- and –

 

Petrolia Canada Corporation , a body corporate, having an office at the City of Calgary, in the Province of Alberta (hereinafter referred to as " Purchaser ")

 

 

WHEREAS Blue Sky has agreed to sell and convey 25% interest in the Assets to Purchaser and Purchaser has agreed to purchase and receive 25% interest in the Assets from Seller pursuant to a Sale Agreement between Cona Resources and Georox, dated March 21, 2018 (hereinafter referred to as the " Sale Agreement ");

 

 

WHEREAS all of the conditions precedent to the obligations of the parties hereto to close the transactions contemplated by the Sale Agreement have either been fulfilled or waived in the manner provided for waiver in the Sale Agreement. Further pursuant to the Promissory Note between Seller and Purchaser dated June 8, 2018, until such provisions have been met, such interest will be held by the Seller as Collateral. Refer to Promissory note of June 8, 2018.

 

 

NOW THEREFORE in consideration of the mutual covenants contained herein and the consideration provided for in the Sale Agreement, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto covenant and agree as follows:

 

1. INTERPRETATION

Unless otherwise expressly indicated herein, all capitalized terms used herein are as defined in the Sale Agreement.

 

2. CONVEYANCE

Seller hereby sells, assigns, transfers, conveys and sets over to Purchaser the right, title, estate and interest of Seller in and to the Assets, to have and to hold the same absolutely, together with all benefit and advantage to be derived therefrom, subject to the terms of the Sale Agreement.

 

3. REPRESENTATION AND WARRANTIES

The covenants, representations, warranties and indemnities contained in the Sale Agreement are incorporated herein as fully and effectively as if they were set out herein and there shall not be any merger of any covenant, representation, warranty or indemnity contained in the Sale Agreement by virtue of the execution and delivery hereof, any rule of law, equity or statute to the contrary notwithstanding.

 

     
 

 

4. SUBORDINATE DOCUMENT

This Conveyance is executed and delivered by the Parties hereto pursuant to and for the purposes of the Sale Agreement and the provisions of the Sale Agreement shall prevail and govern in the event of a conflict between the provisions of the Sale Agreement and this Conveyance.

 

5. SUBSTITUTION

The assignment and conveyance effected by this Agreement is made with full right of substitution of Purchaser in and to all covenants, representations, warranties and indemnities by others heretofore given or made in respect of the Assets or any part thereof.

 

6. GOVERNING LAW

This Agreement shall, in all respects, be subject to, interpreted, construed and enforced in accordance with and under the laws of the Province of Alberta and applicable laws of Canada and shall, in all respects, be treated as a contract made in the Province of Alberta. The Parties irrevocably attorn and submit to the exclusive jurisdiction of the courts of the Province of Alberta and courts of appeal therefrom in respect of all matters arising out of or in connection with this Agreement.

 

7. ENUREMENT

This Conveyance shall be binding upon and shall endure to the benefit of each of the Parties hereto and their respective successors and assigns.

 

8. FURTHER ASSURANCES

Each Party hereto will, from time to time and at all times hereafter, at the request of the other Party but without further consideration, do all such further acts and execute and deliver all such further documents as shall be reasonably required in order to fully perform and carry out the terms hereof.

 

9. COUNTERPART EXECUTION

This Conveyance may be executed by facsimile and in counterparts and all executed and delivered counterparts together shall constitute a fully executed agreement.

 

IN WITNESS WHEREOF the Parties hereto have executed this Conveyance on the date first above written.

 

 

 

 

     
 

Petrolia Energy Corporation 8-K

 

Exhibit 10.3

 

PROMISSORY NOTE

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE " ACT "), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

CAD $406,181

June 8 th , 2018

FOR VALUE RECEIVED, Petrolia Energy Corporation , a Alberta, Canada corporation, having its principal office at 710 N. Post Oak Blvd, Suite 500, Houston, TX 77024 (“ Maker ”), hereby promises to pay, subject to the terms and conditions of this promissory note (the “ Note ”), to the order of Blue Sky Resources Ltd., a Alberta, Canada corporation, having its principal address at Suite 800, 138 4 th Avenue SE, Calgary, Alberta, Canada T2G 4Z6 (“ Payee ”) the sum of Four Hundred Six Thousand One Hundred Eighty One Dollars (CAD $406,181) (“ Principal Amount ”), together with simple interest at a rate of one percent (9%) per annum.

This Note is issued pursuant to, and in accordance with, the Purchase and Sale Agreement, dated June 08 th , 2018 by and among the Maker, Payee and Holder (the “ Purchase Agreement ”). All capitalized terms not otherwise defined in this Note shall have the meanings attributed to such terms in the Purchase Agreement.

The terms of this Note are set out below:

1. This Note shall bear nine percent (9%) simple interest per annum (“ Interest ”) commencing on and as of August 1 st , 2018. For the avoidance of doubt, the Note shall bear no interest until July 31, 2018.
2. The maturity date (the “ Maturity Date ”); shall be November 30, 2018, provided, however, the Maker may, at its sole discretion, extend the Maturity Date for a period of six (6) months upon ten (10) days’ notice to the Payee and payment of twenty-five percent (25%) of the Principal Amount to the Payee on or before the Maturity Date.
3. The Maker may, at the Maker’s sole discretion, pay in part or in full, any amounts owed under this Note at any time prior to the Maturity Date without any penalties or fees.
4. This Note may not be amended or modified except by a written agreement executed by the Maker and the Payee.
5. This Note shall take effect as a sealed instrument and be enforced in accordance with the laws of the State of Texas.
6. The parties to this Note shall be subject to the confidentiality obligations set forth in the Purchase Agreement.

 

Signature Page Follows

     
 

 

The Note will be effective as of the date first written above.

 

     
 

Petrolia Energy Corporation 8-K

 

Exhibit 99.1

 

 

 

Petrolia Energy Acquires Interest in Producing Oil and Gas Properties in Southwest Saskatchewan and Southeast Alberta, Canada

HOUSTON, TX – July 6, 2018 -- Petrolia Energy Corporation (OTCQB: BBLS) (“Petrolia” or the “Company”) is pleased to announce that it has acquired a 25% working interest in the Luseland, Hearts Hill, and Cuthbert fields, located in Southwest Saskatchewan and Eastern Alberta, Canada.

The acquisition consists of working interests in a total of 64 sections (approximately 41,526 acres) with 240 oil and 12 natural gas wells producing on the properties. Additionally, there are several idle wells with potential for reactivation and 34 sections of undeveloped land (approximately 21,760 acres). Average aggregate total production/sales from the purchased properties for the last 5 months was approximately 1,290 barrels of oil per day (boepd) (1,222 bopd of oil and 68 boepd of natural gas) and a 25% interest nets approximately 322 boepd.

Petrolia believes there is significant potential in these assets beyond primary recovery through the implementation of water flood/pressure support, as well as numerous reactivations and infill drilling opportunities, in addition to the opportunity to reduce operating expenditures. We believe these efforts would significantly extend the life of, and increase recoverability of reserves from, the assets.

Zel C. Khan, the CEO/President of Petrolia commented, "This was a fantastic acquisition for our Company. With the implementation of new technology and modern methodology, we believe production and life expectancy can be dramatically increased. The cash-flow, proven reserves, and behind pipe upside, will all play a part in our continued pursuit to build shareholder value.”

About Petrolia Energy Corporation

Petrolia Energy Corporation is an Oil & Gas exploration, production, and service company with producing and prospective onshore assets in the United States, Canada and Indonesia. The Company’s core asset is in the NW Shelf of the Permian Basin, in New Mexico. It has other North American properties in its portfolio, where it is focused on redeveloping existing oil fields in well-established oil rich regions including Oklahoma and Saskatchewan and Alberta, Canada. In Indonesia, the Company is situated in the prolific Indonesian Sumatra basin, focused on discovering, appraising, developing and producing its interests in 5 Production Sharing Contracts (PSCs) and 1 Joint Study Agreement (JSA). Petrolia’s headquarters are in Houston, Texas.

Forward-looking Statements

Certain information in this press release constitutes forward-looking statements within the meaning of applicable securities laws, including, but not limited to, statements regarding well production, use of proceeds, future drilling, operating expenses, and additional funding. Any statement that does not contain a historical fact may be deemed to be a forward-looking statement. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," or "continue," the negative of such terms, or other comparable terminology, although not all forward-looking statements contain such identifying words.

   
 

Forward-looking statements are subject to a number of assumptions, risks, and uncertainties, many of which are beyond the Company's control, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Such assumptions, risks, and uncertainties include, among others, those associated with exploration activities, oil and gas production, marketing and transportation, costs of operations, loss of markets, volatility of oil and gas prices, reserve and future production estimates, environmental risks, competition, inability to access sufficient capital from internal and external sources, general economic conditions, litigation, and changes in regulation and legislation. Readers are cautioned that the foregoing list is not exhaustive.

Additional information on these and other factors that could affect Petrolia’s operations or financial results is available by contacting Petrolia and is included in the risk factors and other sections of Petrolia’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this press release are made as of the date of this press release, and Petrolia does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events, or otherwise, except as expressly required by applicable law. The Company's SEC filings are available at http://www.sec.gov.

For more Information contact:

Media Contact:

Press@PetroliaEnergy.com

Investor Relations Contact:

IR@PetroliaEnergy.com

www.PetroliaEnergy.com

Source: Petrolia Energy Corporation