Background
We were incorporated in Colorado on January 16, 2002. In April 2012, we became
active in the exploration and development of oil and gas properties. Effective
September 2, 2016, we formally changed our name to Petrolia Energy Corporation
and moved the corporation from Colorado to Texas.
Plan of Operation
Since 2015, we have established a clearly defined strategy to acquire, enhance
and redevelop high-quality, resource in place oil and gas assets. The Company
has been focusing on producing assets in the United States and Canada while
actively pursuing our strategy to offer low-cost operational solutions in
established Oil and Gas regions. We believe our mix of oil-in-place conventional
plays, low-risk resource plays and the redevelopment of our late-stage plays is
a solid foundation for continued growth and future revenue growth.
Slick Unit Dutcher Sands ("SUDS") Field
The SUDS oilfield consists of approximately 2,604 acres located in Creek County,
Oklahoma and Petrolia owns a 100% Working Interest ("WI") with a 76.5% net
revenue interest (NRI). Our engineering reports and analysis indicate there is
still considerable recoverable reserves remaining.
The SUDS field is currently shut-in while awaiting sufficient capital to
recomplete the wells and repair the flow lines that were damaged in a grass
fire.
Twin Lakes San Andres Unit ("TLSAU") Field
TLSAU is located 45 miles from Roswell, Chaves County, New Mexico. TLSAU is
currently shut-in awaiting confirmation of lease acreage held, then capital
allocation to complete some regulatory plugging requirements. The Company
plugged two wells at Twin Lakes in June 2022 and is currently working on surface
remediation activities.
The Company is reviewing strategic options with the TLSAU asset, with a bias
toward divesting the asset.
Askarii Resources, LLC
Effective February 1, 2016, the Company acquired 100% of the issued and
outstanding interests of Askarii Resources LLC, a private Texas based oil & gas
service company for the aggregate value of $50,000. The Company currently has no
intent of further investing in the Askarii Resources, LLC acquisition.
Luseland, Hearts Hill and Cuthbert fields
On June 29, 2018, the Company acquired a 25% working interest in approximately
41,526 acres in the Luseland, Hearts Hill, and Cuthbert fields, located in
Southwest Saskatchewan and Eastern Alberta, Canada. The working interest was
acquired from Blue Sky Resources (a related party). Blue Sky Resources had
previously acquired an 80% working interest from Georox Resources Inc., who had
acquired the Canadian Properties from Cona Resources Ltd.
On September 17, 2018, the Company entered into a Memorandum of Understanding
("MOU") with Blue Sky Resources to obtain the rights to acquire an additional 3%
working interest, increasing our working interest to 28%. Total consideration
paid from the Company to Blue Sky Resources for the additional 3% Working
Interest was $150,000.
On February 16, 2022, Petrolia Canada Corporation (PCC), a wholly owned
subsidiary of Petrolia Energy Corporation (PEC), entered into a Purchase and
Sale Agreement (PSA) and Debt Settlement Agreement (DSA) with Prospera Energy,
Inc. whereby PCC sold its 28% working interest in the Luseland, Hearts Hill and
Cuthbert fields. The agreements were effective as of October 1, 2021.
Utikuma Lake field
On May 1, 2020, Petrolia Energy Corporation acquired a 50% working interest in
approximately 28,000 acres located in the Utikuma Lake area in Alberta, Canada.
The property is an oil-weighted asset currently producing a total of
approximately 500 bpd of light oil. The working interest was acquired from Blue
Sky Resources in an affiliated party transaction as Zel C. Khan, the Company's
former Chief Executive Officer, is related to the ownership of Blue Sky
Resources.
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Blue Sky Resources 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 (CAD), with $1,000,000 (CAD) of that total due
initially. The additional $1,000,000 (CAD) 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 (CAD). In addition, at the time WTI price exceeded $57/bbl
the Company would pay an additional $250,000 (CAD) (for a cumulative contingent
total of $1,000,000 (CAD)). 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 ($611,197 USD), necessary for the wells
to continue in production after the acquisition. Additional funds ($392,625 USD)
remain in the other current asset balance for future payments to BSR, related to
the acquisition.
Results of Operations
Revenues
Our oil and gas revenue reported for the three months ended March 31, 2022 was
$1,836,360, an increase of $754,112 from the three months ended March 31, 2021.
The increase was due to revenue from the Utikuma field, and was offset by the
sale of the CONA asset in the third quarter of 2021. Revenues associated with
our US properties totaled $6,079.
Operating Expenses
Operating expenses increased by $380,200, to $1,519,115 for the three-month
period ended March 31, 2022, compared to $1,138,915 for the three months ended
March 31, 2021. The operating expense increase was primarily due to increased
production at Utikuma Field - lease operating expense for the three months ended
March 31, 2022 was $1,275,875, compared to $535,393 for the three months ended
March 31, 2021. It was partially reduced by the sale of the CONA asset.
Depreciation, depletion and amortization and the accretion of asset retirement
obligations were reduced because of the small base for these items after the
sale of CONA. The reduction in general and administrative costs by $183,168 to
$147,846 for the three months ended March 31, 2022, compared to $331,014 was
caused by the decrease in employees and contractor and related overhead
expenses.
Other income (expense)
The Company had net other expense of $101,931 for the three-month period ended
March 31, 2022, compared to a net other expense of $345,764 for the three-month
ended March 31, 2021. This difference was caused by changes in the fair market
value of our derivatives, and a small decrease in interest expense.
Foreign exchange gain was $29,857 for the three-month period ended March 31,
2022, compared to a loss of $2,327 for the three-month period ended March 31,
2021. The increase resulted from fluctuations in the value of the United States
dollar against the Canadian dollar.
Net Income (Loss)
Net income for the three months ended March 31, 2022, was $215,314, compared to
a net loss of $402,431 for the three months ended March 31, 2021. The primary
reasons for the change was increased production from the Utikuma field, the
reduced general and administrative expense, and the change in the fair value of
our derivative liabilities.
Liquidity and Capital Resources
The financial condition of the Company has improved slightly throughout the
period from December 31, 2021 to March 31, 2022.
As of March 31, 2022, we had total current assets of $341,166 and total assets
of $8,138,518. Our total current liabilities as of March 31, 2022 were
$6,653,330 and our total liabilities as of March 31, 2022 were $8,975,653. We
had negative working capital of $6,312,164 as of March 31, 2022.
Our material asset balances are made up of oil and gas properties and related
equipment. Our most significant liabilities are notes payable and notes payable
related party of $4,217,915 along with accounts payable and accrued liabilities.
Our largest accounts payable balances are with administrative and operations
contractors. The largest accrued liabilities are $857,498 of accrued dividends
on our preferred stock and $796,110 owed to related parties for board fees and
other compensation.
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Net cash generated (used) by operating activities was $75,496 and $(46,947) for
the three months ended March 31, 2022, and 2021, respectively. The primary cause
for the decrease was a reduction in general and administrative expenses.
Net cash from investing activities was $0.00 for the three months ended March
31, 2022, and the three months ended March 31, 2021.
Net cash provided by financing activities was $15,544 for the three months ended
March 31, 2022; net cash used by financing activities was $12,147 for the three
months ended March 31, 2021. The increase was caused by proceeds from issuance
of preferred stock in 2022.
During the three months ended March 31, 2022, the Company operated at a positive
cash flow from operations of approximately $25,000 per month however our
auditors have raised a going concern in their audit report as contained herein.
The Company has suffered recurring losses from operations. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. We plan to generate profits by working over existing wells, reducing
general and administrative expenses and resolving ongoing litigation. However,
we may need to raise additional funds to workover wells through the sale of our
securities, through loans from third parties or from third parties willing to
pay our share of drilling and completing the wells. We do not have any
commitments or arrangements from any person to provide us with any additional
capital.
If additional financing is not available when needed, we may need to cease
operations. There can be no assurance that we will be successful in raising the
capital needed to recomplete oil or gas wells nor that any such additional
financing will be available to us on acceptable terms or at all.
Management believes that actions presently being taken to obtain additional
funding provide the opportunity for the Company to continue as a going concern.
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.
Off-Balance Sheet Arrangements
As of March 31, 2022, we had no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
results of operations, liquidity or capital resources or change our financial
condition.
Trends Affecting Future Operations
The factors that will most significantly affect our results of operations will
be (i) the sale prices of crude oil and natural gas, (ii) the amount of
production from oil or gas wells in which we have an interest, and (iii) lease
operating expenses. Our revenues will also be significantly impacted by our
ability to maintain or increase oil or gas production through exploration and
development activities, and the availability of funding to complete such
activities.
It is expected that our principal source of cash flow will be from the
production and sale of crude oil and natural gas reserves which are depleting
assets. Cash flow from the sale of oil and gas production depends upon the
quantity of production and the price obtained for the production. An increase in
prices will permit us to finance our operations to a greater extent with
internally generated funds, may allow us to obtain equity financing more easily
or on better terms, and lessens the difficulty of obtaining financing. However,
price increases heighten the competition for oil and gas prospects, increase the
costs of exploration and development, and, because of potential price declines,
increase the risks associated with the purchase of producing properties during
times that prices are at higher levels.
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A decline in oil and gas prices (i) will reduce the cash flow internally
generated by the Company which in turn will reduce the funds available for
exploring for and replacing oil and gas reserves, (ii) will increase the
difficulty of obtaining equity and debt financing and worsen the terms on which
such financing may be obtained, (iii) will reduce the number of oil and gas
prospects which have reasonable economic terms, (iv) may cause us to permit
leases to expire based upon the value of potential oil and gas reserves in
relation to the costs of exploration, (v) may result in marginally productive
oil and gas wells being abandoned as non-commercial, and (vi) may increase the
difficulty of obtaining financing. However, price declines reduce the
competition for oil and gas properties and correspondingly reduce the prices
paid for leases and prospects.
Other than the foregoing, we do not know of any trends, events or uncertainties
that will have, or are reasonably expected to have, a material impact on our
sales, revenues, or expenses.
The company is actively working to resolve ongoing litigation in the U.S. and
Canada.
Critical Accounting Policies and New Accounting Pronouncements
In December 2001, the SEC requested that all registrants list their most
"critical accounting polices" in the Management Discussion and Analysis. The SEC
indicated that a "critical accounting policy" is one which is both important to
the portrayal of a company's financial condition and results, and requires
management's most difficult, subjective, or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
Going concern - The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred cumulative net losses of $61,170,710 since its inception and requires
capital for its contemplated operational and marketing activities to take place.
The Company's ability to raise additional capital through the future sales of
common stock is unknown. The obtainment of additional financing, the successful
development of the Company's contemplated plan of operations, and its
transition, ultimately, to the attainment of profitable operations are necessary
for the Company to continue operations. The ability to successfully resolve
these factors raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements of the Company do not
include any adjustments that may result from the outcome of these aforementioned
uncertainties.
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