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.