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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2021

 

Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-52690

 

PETROLIA ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Texas   86-1061005

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

710 N. Post Oak Road, Suite 400

Houston, Texas

  77024
(Address of principal executive offices)   (Zip Code)

 

(832-723-1266)

(Issuer’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No

 

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer Smaller Reporting Company
   
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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 176,988,322 shares of common stock as of July 29, 2022.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
Part I Financial Information  
     
Item 1. Consolidated Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
     
Item 4. Controls and Procedures 24
     
Part II Other Information  
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 3. Defaults Upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other Information 26
     
Item 6. Exhibit Index 26
     
SIGNATURES 27
     
EXHIBITS 28

 

2

 

 

PART I: Financial Information

 

Item 1. Consolidated Financial Statements

 

PETROLIA ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,
2021
   December 31,
2020
 
    (unaudited)    (audited) 
ASSETS          
Current assets          
Cash  $34,454   $155,045 
Accounts receivable   5,801    5,000 
Other current assets   14,664    39,443 
Total current assets   54,919    199,488 
           
Property & equipment          
Oil and gas, on the basis of full cost accounting          
Evaluated properties   9,401,370    8,619,427 
Furniture, equipment & software   201,110    201,110 
Less accumulated depreciation and depletion   (3,435,527)   (2,868,453)
Net property and equipment   6,166,953    5,952,084 
           
Other assets          
Operating lease right-of-use asset   15,450    23,145 
Other assets   984,520    985,187 
           
Total Assets  $7,221,842   $7,159,904 
           
LIABILITIES & STOCKHOLDERS DEFICIT          
           
Current liabilities          
Accounts payable  $2,093,980   $1,067,841 
Accounts payable – related parties       587 
Operating lease liability – current   14,607    13,107 
Accrued liabilities   963,064    1,572,055 
Accrued liabilities – related parties   735,107    751,949 
Notes payable, current portion   3,363,524    3,037,737 
Notes payable – related parties, current portion   779,373    1,035,329 
Total current liabilities   7,949,655    7,478,605 
           
Asset retirement obligations   3,893,224    3,624,133 
Notes payable, net of current portion       573 
Operating lease liability   1,923    13,909 
Derivative liability   23,609    183,798 
Total Liabilities  $11,868,411   $11,301,018 
           
Stockholders’ Deficit          
Preferred stock, $0.001 par value, 1,000,000 shares authorized;
199,100 shares issued and outstanding
  $199   $199 
Common stock, $0.001 par value; 400,000,000 shares authorized; 176,988,322 and 168,696,226 shares issued and outstanding   176,988    168,696 
Additional paid in capital   60,119,924    59,044,519 
Accumulated other comprehensive income   (255,023)   (266,432)
Accumulated deficit   (64,688,657)   (63,088,096)
Total Stockholders’ Deficit   (4,646,569)   (4,141,114)
           
Total Liabilities and Stockholders’ Deficit  $7,221,842   $7,159,904 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

3

 

 

PETROLIA ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

   Three months ended
September 30, 2021
   Three months ended
September 30, 2020
   Nine months ended
September 30, 2021
   Nine months ended
September 30, 2020
 
Oil and gas sales                    
Oil and gas sales  $1,723,706   $953,524   $4,054,313   $1,943,866 
Total Revenue   1,723,706    953,524    4,054,313    1,943,866 
                     
Operating expenses                    
Lease operating expense   1,578,290    1,125,921    3,726,759    2,462,342 
Production tax   1        1,164    837 
General and administrative expenses   154,554    213,167    676,510    773,625 
Depreciation, depletion, and amortization   142,456    353,343    578,880    876,650 
Asset retirement obligation accretion   93,787    84,477    275,511    199,092 
Loss on TLSAU abandonment       3,225,928        3,225,928 
Total operating expenses   1,969,088    5,002,836    5,258,824    7,538,474 
                     
Loss from operations   (245,382)   (4,049,312)   (1,204,511)   (5,594,608)
                     
Other income (expenses)                    
Interest expense   (148,576)   (175,380)   (478,526)   (543,244)
Other income (expense)   56,680    (188,795)   56,680    (184,024)
Change in fair value of derivative liabilities   264,794    75,362    160,189    (173,628)
Total other income (expenses)   172,898    (288,813)   (261,657)   (900,896)
Net loss before taxes   (72,484)   (4,338,125)   (1,466,168)   (6,495,504)
                     
Series A Preferred Dividends   (44,825)   (44,674)   (134,393)   (134,025)
                     
Net Loss Attributable to Common Stockholders   (117,309)   (4,382,799)   (1,600,561)   (6,629,529)
                     
Loss per share                    
(Basic and fully diluted)  $(0.00)  $(.03)  $(0.01)  $(.04)
                     
Weighted average number of common shares outstanding, basic & diluted   176,988,322    165,296,226    174,910,384    165,244,392 
                     
Other comprehensive income, net of tax                    
Foreign currency translation adjustments   48,814    175    11,409    (1,811)
Comprehensive loss  $(68,495)  $(4,382,624)  $(1,589,152)  $(6,631,340)

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

4

 

 

PETROLIA ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

 

   Shares   Amount   Shares   Amount   capital   issued   income   deficit   (deficit) 
   Preferred stock   Common stock   Additional paid-in   Shares to be   Accumulated other comprehensive   Accumulated  

Shareholders’

equity

 
   Shares   Amount   Shares   Amount   capital   issued   income   deficit   (deficit) 
Balance at December 31, 2019   199,100   $199    164,548,726   $164,549   $57,985,359   $55,375   $(218,565)  $(52,600,378)  $5,386,539 
                                              
Stock-based compensation                   231,179                231,179 
Common shares issued           591,250    591    54,784    (55,375)            
Series A preferred dividends                               (134,025)   (134,025)
Warrants issued as financing fees                   30,147                30,147 
Shares for conversion of related party debt           156,250    156    12,344                12,500 
Warrants issued with loans                   332,881                332,881 
Stock to be issued                         119,375            119,375 
Other comprehensive income (loss)                           (1,811)       (1,811)
Net loss                               (6,495,504)   (6,495,504)
Balance at September 30, 2020   199,100   $199    165,296,226   $165,296   $8,646,694   $119,375   $(220,376)  $(59,229,907)  $(518,719)
                                              
Balance at December 31, 2020   199,100   $199    168,696,226   $168,696   $59,044,519   $   $(266,432)  $(63,088,096)  $(4,141,114)
                                              
Stock-based compensation                   57,047                57,047 
Series A preferred dividends                               (134,393)   (134,393)
Warrants issued as financing fee                   17,338                17,338 
Common shares issued for conversion of debt           2,700,000    2,700    86,400                89,100 
Common shares issued for settlement of related party fee           5,592,096    5,592    158,895                164,487 
Warrants issued for settlement of loans                   200,378                200,378 
Gain on modification of related party debt                   181,791                181,791 
Gain on issuance of shares for settlement of accrued related party fees                   373,556                373,556 
Other comprehensive income (loss)                           11,409        11,409 
Net income (loss)                               (1,466,168)   (1,466,168)
Balance at September 30, 2021   199,100   $199    176,988,322   $176,988   $60,119,924   $   $(255,023)  $(64,688,657)  $(4,646,569)

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

5

 

 

PETROLIA ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine months ended September 30, 2021   Nine months ended September 30, 2020 
Cash Flows from Operating Activities          
Net loss  $(1,466,168)  $(6,495,504)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:          
Depletion, depreciation and amortization   578,880    876,650 
Asset retirement obligation accretion   275,511    199,092 
Operating lease   (2,791)    
Amortization of debt discount   170,507    146,562 
Change in fair value of derivative liabilities   (160,189)   173,628 
Stock-based compensation expense   57,047    231,179 
Warrants issued as financing fees   17,338    30,147 
Forgiveness of PPP loan   (56,680)    
Loss on TLSAU abandonment       3,225,928 
Changes in operating assets and liabilities          
Accounts receivable   (801)    
Other current assets   24,779    44,949 
Accounts payable   1,029,530    268,099 
Accounts payable – related parties   (787,837)    
Accrued liabilities   (3,048)   357,899 
Accrued liabilities – related parties   320,342    196,938 
Net cash flows from operating activities   (3,580)   (744,433)
           
Cash Flows from Investing Activities          
Escrow for property purchase        
Cash flows from investing activities        
           
Cash Flows from Financing Activities          
Proceeds from notes payable       95,385 
Repayments on notes payable   (116,935)   (4,619)
Proceeds from related party notes payable       615,000 
Repayments on related party notes payable       (55,003)
Shares to be issued       119,375 
Cash flows from financing activities   (116,935)   770,138 
           
Changes in foreign exchange rate   (76)   (53,344)
           
Net change in cash   (120,591)   (27,639)
Cash at beginning of period   155,045    34,513 
Cash at end of period  $34,454   $6,874 

 

SUPPLEMENTAL DISCLOSURES

 

   Nine months ended September 30, 2021   Nine months ended September 30, 2020 
SUPPLEMENTAL DISCLOSURES          
Interest paid  $239,389   $113,756 
Income taxes paid        
NON-CASH INVESTING AND FINANCIAL DISCLOSURES          
Series A preferred dividends accrued   134,393    134,025 
Debt discount on warrant issue       332,881 
Conversion of related party debt and payables   557,520     
Modification of related party debt   181,791     
Capitalized interest payable   204,488     
Settlement of notes payable related party for common shares   135,000    12,500 
Issuing of previous shares to be issued       55,375 
Utikuma acquisition – purchase price       788,835 
Utikuma acquisition – initial ARO       906,146 
Utikuma acquisition – extra cost triggered by WTI   787,250     
Third party loan for Utikuma purchase       1,120,000 
Related party loan payments on Company’s behalf       245,000 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

6

 

 

PETROLIA ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION:

 

Petrolia Energy Corporation (the “Company”) is in the business of oil and gas exploration, development and production.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for such interim periods are not necessarily indicative of operations for a full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the year ended December 31, 2020, as reported in Form 10-K, have been omitted.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Leases

 

Leases are classified as operating leases or financing leases based on the lease term and fair value associated with the lease. The assessment is done at lease commencement and reassessed only when a modification occurs that is not considered a separate contract.

 

Lessee arrangements

 

Where the Company is the lessee, leases classified as operating leases are recorded as lease liabilities based on the present value of minimum lease payments over the lease term, discounted using the lessor’s rate implicit in the lease or the Company’s incremental borrowing rate, if the lessor’s implicit rate is not readily determinable. The lease term includes all periods covered by renewal and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options. Corresponding right-of-use assets are recognized consisting of the lease liabilities, initial direct costs and any lease incentive payments.

 

Lease liabilities are drawn down as lease payments are made and right-of-use assets are depreciated over the term of the lease. Operating lease expenses are recognized on a straight-line basis over the term of the lease, consisting of interest accrued on the lease liability and depreciation of the right-of-use asset, adjusted for changes in index-based variable lease payments in the period of change.

 

Lease payments on short-term operating leases with lease terms twelve months or less are expensed as incurred.

 

Fair Value of Financial Instruments

 

Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2021, the amounts reported for cash, accrued interest and other expenses, notes payable, convertible notes, and derivative liability approximate the fair value because of their short maturities.

 

We adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

 

7

 

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The hierarchy is broken down into three levels based on the observability of inputs as follows:

 

  Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment;
  Level 2 — Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly; and
  Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows as of September 30, 2021, and December 31,2020.

 

September 30, 2021  Level 1   Level 2   Level 3   Total 
Derivative liabilities           23,609    23,609 
ARO liabilities           3,893,224    3,893,224 
                     
December 31, 2020                    
Derivative liabilities           183,798    183,798 
ARO liabilities           3,624,133    3,624,133 

 

Loss per share:

 

The computation of basic loss per share of common stock is based on the weighted average number of shares outstanding during the period.

 

NOTE 3. GOING CONCERN

 

The Company has suffered recurring losses from operations and currently has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to generate profits by reworking its existing oil or gas wells, as needed, funding permitting. The Company will need to raise funds through either the sale of its securities, issuance of corporate bonds, joint venture agreements and/or bank financing to accomplish its goals. The Company does not have any commitments or arrangements from any person to provide the Company with any additional capital.

 

If additional financing is not available when needed, we may need to cease operations. The Company may not be successful in raising the capital needed to drill and/or rework existing oil wells. Any additional wells that the Company may drill may be non-productive. Management believes that actions presently being taken to secure additional funding for the reworking of its existing infrastructure will provide the opportunity for the Company to continue as a going concern. Since the Company has an oil producing asset, its goal is to increase the production rate by optimizing its current infrastructure. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

 

8

 

 

NOTE 4. EVALUATED PROPERTIES

 

The Company’s current properties can be summarized as follows.

 

SCHEDULE OF COMPANY’S CURRENT PROPERTIES

Cost  Canadian properties   United States properties   Total 
As of December 31, 2019  $2,563,434   $10,350,538   $12,913,972 
Additions   678,765        678,765 
Dispositions       (5,648,994)   (5,648,994)
Impairment of oil and gas properties       (396,922)   (396,922)
Asset retirement cost additions   906,146        906,146 
Foreign currency translation   166,460        166,460 
As of December 31, 2020  $4,314,805   $4,304,622   $8,619,427 
Additions   787,250        787,250 
Foreign currency translations   (5,307)       (5,307)
As of September 30, 2021  $5,096,748   $4,304,622   $9,401,370 
                
Accumulated depletion               
As of December 31, 2019   1,458,976    61,551    1,520,527 
Depletion   1,115,595        1,115,595 
Foreign currency translation   57,178        57,178 
As of December 31, 2020  $2,631,749   $61,551   $2,693,300 
Depletion   559,641        559,641 
Foreign currency translation   (11,806)       (11,806)
As of September 30, 2021  $3,179,584   $61,551   $3,241,135 
                
Net book value as of December 31, 2020  $1,683,056   $4,243,071   $5,926,127 
Net book value as of September 30, 2021  $1,917,164   $4,243,071   $6,160,235 

 

On August 6, 2019, the Company entered into a Purchase and Sale Agreement (“PSA”) for the sale of the NOACK property with Flowtex Energy LLC (“FT”). The purchaser agreed to pay $400,000 for the NOACK Assets including a $20,000 deposit that was received on August 15, 2019, and the remaining balance of $380,000 to be received by September 30, 2019. By December 31, 2019, FT had made cumulative payments of $375,000, resulting in a $25,000 account receivable to the Company on June 30, 2021, which was included in other current assets. The $400,000 was recorded as a gain on sale of properties. On July 6, 2021, the remaining $25,000 accounts receivable was settled via the following: the purchaser remitted a cash payment of $8,995, as well as paying (on the Company’s behalf) $16,005 of outstanding property tax invoices previously incurred by the Company.

 

On May 1, 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 (CND). In addition, at the time WTI price exceeded $57/bbl the Company would pay an additional $250,000 (CND) (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 from BSR, related to the acquisition.

 

On July 27, 2020, the Company entered into a settlement agreement pursuant to which nine leases totalling approximately 3,800 acres of the 4,880-acre Twin Lakes San Andres Unit were forfeited as a part of the settlement agreement. Consequently, the Company no longer has the right to produce oil, gas, or other hydrocarbons and any other minerals from the mineral estate encumbered by the leases and owned by the Trustee. The company accounted for the forfeiture of the TLSAU properties, in accordance with Reg S-W.T.Rule 4-10(c)(6). Accordingly, an analysis of multi-period reserve reports was performed to determine the percentage of the cumulative US full cost pool’s reserves that were forfeited (56% or 943,820). Then that percentage was multiplied by the period end net property balance of $10,175,456. This resulted in a write down of $5,648,994 ($10,175,456 * 56%) of the US cost pool, which was recorded as part of operating expenses for the year ended December 31, 2020. Note that both TLSAU and SUDS make up the US full cost pool.

 

On April 8, 2021, the State of New Mexico Energy, Minerals and Natural Resources Oil Conservation Division (“OCD”) sent the Company a Notice of Violation alleging that the Company was not in compliance with certain New Mexico Oil and Gas Act regulations associated with required reporting, inactive wells, and financial assurance requirements. On December 30, 2021, the Company entered a Stipulated Final Order to resolve the matter. The company agreed to submit appropriate forms for the identified wells, open an escrow account and deposit funds into it, and provide the OCD with a report proposing deadlines for bringing all remaining wells into compliance. The first two wells were plugged in June of 2022. See Form 8-K reference in Exhibits section below.

 

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NOTE 5. LEASES

 

Our adoption of ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842, requires us to recognize substantially all leases on the balance sheet as an ROU asset and a corresponding lease liability. The new guidance also requires additional disclosures as detailed below. We adopted this standard on the effective date of January 1, 2019 and used this effective date as the date of initial application. Under this application method, we were not required to restate prior period financial information or provide Topic 842 disclosures for prior periods. We elected the ‘package of practical expedients,’ which permitted us to not reassess our prior conclusions related to lease identification, lease classification, and initial direct costs, and we did not elect the use of hindsight.

 

Lease ROU assets and liabilities are recognized at commencement date of the lease, based on the present value of lease payments over the lease term. The lease ROU asset also includes any lease payments made and excludes any lease incentives. When readily determinable, we use the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date, including the lease term.

 

Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. As of September 30, 2021, we did not have any short-term leases.

 

The tables below present financial information associated with our lease.

 

   Balance Sheet Classification  September 30, 2021   December 31, 2020 
            
Right-of-use assets  Other long-term assets   15,450    23,145 
Current lease liabilities  Other current liabilities   14,607    13,107 
Non-current lease liabilities  Other long-term liabilities   1,923    13,909 

 

As of September 30, 2021, the maturities of our lease liability are as follows:

     
2021  $14,607 
2022   1,923 
Total  $16,530 
Less: Imputed interest   (1,080)
Present value of lease liabilities  $15,450 

 

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NOTE 6. NOTES PAYABLE

 

The following table summarizes the Company’s 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.

 

11

 

 

  (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.

 

12

 

 

The following is a schedule of future minimum repayments of notes payable as of September 30, 2021:

 

      
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:

 

          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.

 

13

 

 

  (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:

 

      
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.

 

14

 

 

A summary of the activity of the derivative liabilities is shown below:

 

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.

 

   September 30,
2021
 
Risk-free interest rate   0.0230.28%
Expected life   1.261.27 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:

 

      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:

 

   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 

 

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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.

 

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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:

 

   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:

 

   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.

 

   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.

 

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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:

 

   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 

 

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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 <