Item 1.01 Entry into a Material Definitive Agreement.
On August 19, 2020, Petrolia Energy Corporation ("Petrolia" or the
"Company") and LazyDRanch Slick, LLC, an Oklahoma limited liability company
("LazyDRanch"), entered into a Settlement Agreement and Release (the "Settlement
Agreement") pursuant to which LazyDRanch agreed to release and dismiss certain
judgments previously rendered in favor of LazyDRanch against the Company in Case
No. CJ-2019-144 in the District Court in and for Creek County, Oklahoma (Sapulpa
Division) (the "Lawsuit") in exchange for the payment of certain amounts and
performance of certain obligations by the Company in accordance with the terms
of the Settlement Agreement. A summary of the terms of the Settlement Agreement,
together with other background information regarding the Settlement Agreement
and the Lawsuit, is set forth in Item 8.01 hereof and incorporated by reference
into this Item 1.01 in its entirety.
The foregoing, together with the information and disclosures set forth in Item
8.01 hereof and incorporated by reference into this Item 1.01, is a brief
description of the material terms of the Settlement Agreement, does not purport
to be a complete description of the rights and obligations of the parties
thereunder, and is qualified in its entirety by reference to the Settlement
Agreement, which is filed as Exhibit 10.1 hereto. The Settlement Agreement was
entered into solely by way of compromise and settlement and is not in any way an
admission of liability or fault by the Company.
Item 8.01 Other Events
The Company is the operator of certain wells located in the Slick Unit Dutcher
Sand oil and gas unit in Creek County, Oklahoma (the "SUDS Unit").
On May 8, 2019, the Company was sued in the District Court in and for Creek
County, Oklahoma (Sapulpa Division) (the "District Court") by LazyDRanch, which
owns certain land consisting of approximately 160 acres located within the SUDS
Unit (the "LazyDRanch Property"). In the Lawsuit, LazyDRanch alleged that the
Company had allowed the release of deleterious substances from its wells onto,
and failed to remove abandoned oil field equipment from, the LazyDRanch
Property, and demanded that the Company plug certain wells, remove pipelines,
flowlines, and other oilfield related equipment, and perform surface restoration
and remediation of the LazyDRanch Property. LazyDRanch also sought damages in
excess of $75,000 under several equitable and legal theories of recovery, plus
statutory interest and an award of its attorneys' fees and court costs. See
Exhibit 10.2 hereto.
On July 22, 2019, the District Court entered a default judgment in favor of
LazyDRanch and ordered the Company to begin conducting soil and groundwater
sampling and testing on the LazyDRanch Property and removing and properly
disposing of all deleterious substances that had been allowed to discharge from
the Company's abandoned wellbores onto the LazyDRanch Property within thirty
days of the entry of judgment. The District Court also ordered the Company to
perform certain remediation work at the LazyDRanch Property and remove all of
its oilfield equipment (including properly plugging and abandoning all oil and
gas wellbores owned or operated by the Company on the LazyDRanch
Property) within thirty days after completing such removal and disposal. In
addition, the District Court authorized LazyDRanch to commence abatement and
remediation work in the event that the Company failed to comply with the
District Court's orders and provided that any costs and expenses reasonably
incurred by LazyDRanch in so doing would be awarded as additional damages
against the Company.
On January 21, 2020, LazyDRanch filed an application for a hearing on damages
with the District Court, in which LazyDRanch alleged that the Company had failed
to comply with the District Court's judgment and demanded that the Company pay
$1,988,372 for nuisance abatement, remediation, and restoration of the
LazyDRanch Property in accordance with a bid estimate obtained by LazyDRanch.
On February 10, 2020, the District Court entered judgment against the Company
for damages in the amount of $1,988,372 plus post-judgment interest at a rate of
6.75% and reserved a determination on the final amount of LazyDRanch's damages,
interest, attorney's fees and costs. See Exhibit 10.3 hereto.
Pursuant to the Settlement Agreement (discussed in Item 1.01, above), the
Company agreed to (i) make payments totaling $75,000 to LazyDRanch in
three installments, with $30,000 payable upon settlement of the lawsuit, $30,000
payable within 45 days of the dismissal of the Lawsuit, and the last of which
was payable within 180 days of dismissal of the Lawsuit; (ii) use its best
efforts to remove the LazyDRanch Property from the SUDS Field by obtaining a
final, non-appealable order from the Oklahoma Corporation Commission ("OCC") as
to such removal (or enter into a mutually acceptable Surface Non-Use Agreement
with LazyDRanch in the event such removal application was denied); and
(iii) engage in specified remediation work at the LazyDRanch Property (the
"Remediation Work") at a maximum cost to the Company of up to $200,000,
excluding the cost of plugging the four wells located on the LazyDRanch
Property. The Remediation Work included (a) plugging and abandoning the
above-mentioned four wells at a rate of at least one (1) well per quarter;
(b) testing/remediating/re-seeding soils; (c) landfarming any additional
remediation related to well location; (d) removing all oilfield related surface
equipment; (e) performing surface restoration and remediation at locations with
hydrocarbon and brine soil impacts; and (f) flushing, pickling and capping all
preexisting transportation flow lines, all of which was to be completed in
accordance with OCC rules and regulations within 24 months from the date of
execution of the Settlement Agreement. Pursuant to the Settlement Agreement,
LazyDRanch agreed to release all judgments obtained in the Lawsuit and to
dismiss the Lawsuit with prejudice within 5 business days from the execution
thereof.
On August 21, 2020, LazyDRanch released its judgment and dismissed the Lawsuit
with prejudice by filing a Release and Satisfaction of Judgment and Dismissal of
Case with Prejudice in the District Court.
To date the Company has paid a total of $75,000 to LazyDRanch pursuant to the
terms of the Settlement Agreement and further completed the following
Remediation Work: removed power lines and transformers, steel posts, flowlines
and oilfield surface equipment.
Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
10.1* Settlement Agreement and Release dated as of August 19, 2020 by
and between LazyDRanch Slick, LLC, an Oklahoma limited liability
company, and Petrolia Energy Corporation, a Texas corporation
10.2* Petition in the District Court in and for Creek County. State of
Oklahoma (Sapulpa Division). Case Number: CJ-2019-144
10.3* Journal Entry of Judgement in the District Court in and for Creek
County. State of Oklahoma (Sapulpa Division). Case Number:
CJ-2019-144
104 Inline XBRL for the cover page of this Current Report on Form 8-K
* Furnished herewith.
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