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Petroteq Energy signs MiU for $10m for lease and extraction facility

Petroteq Energy, a company focused on the development and implementation of technologies for the environmentally safe extraction of heavy oils from oil sands, oil shale deposits and shallow oil deposits, announces the execution of a memorandum of understanding (MoU) with Deloro Energy.

Pursuant to the terms of the MOU, and subject to all applicable director, shareholder and regulatory approvals, including approval of the TSX Venture Exchange (the "TSXV"), Deloro will loan Petroteq Energy CA, Inc. ("Petroteq Energy CA"), a wholly owned subsidiary of the Company, US$10 million under a convertible debenture (the "Debenture") which will, subject to the terms and conditions of the Debenture, be convertible into up to 49% of Petroteq Energy CA. Petroteq Energy CA is the sole shareholder of Petroteq Oil Sands Recovery, LLC ("Petroteq Oil Sands") and TMC Capital, LLC ("Petroteq TMC").

Upon execution of the MOU, Deloro paid Petroteq Energy CA a US$50,000 non-refundable deposit. Pursuant to the terms and conditions of the MOU, under the Debenture:

Deloro will be required to loan US$9,950,000 in three tranches.

Upon receipt of the first tranche (US$2,500,000) Deloro shall be entitled to receive an economic royalty equal to 25% of the net profits of the Facility (defined below) from the date that the Facility is operational.

The parties agree that at least US$2,000,000 of the first tranche shall be allocated by the Company towards the capital costs and related expenses associated with the Company's planned expansion of the Facility's processing capacity to at least 1,000 barrels/day.

Upon receipt of the second tranche (US$3,500,000) Deloro's economic royalty will increase to 35%.

The second tranche shall only become due and owing by Deloro upon the Company completing its expansion of the Facility's processing capacity to at least 1,000 barrels/day.

If Deloro fails to provide the second tranche by the deadline, subject to a grace period, the first tranche will automatically convert into a 25% equity interest in Petroteq Energy CA, with the Company maintaining an option to repurchase such equity for the principal amount of the first tranche for a period of 12 months.

Upon receipt of the third tranche (US$3,950,000), which is expected to occur on or before June 1, 2018, Deloro's economic royalty will increase to 49%.

If Deloro fails to provide the third tranche by the deadline, subject to a grace period, the first and second tranches will automatically convert into a 35% equity interest in Petroteq Energy CA, with the Company maintaining an option to repurchase such equity for the principal amount of the first and second tranches for a period of 12 months.

While the Company continues to work towards completing the transaction contemplated by the MOU, there can be no assurance that a viable transaction will result or successfully conclude in a timely manner, or at all. Additional information will be released by the Company as it occurs.

The MOU contains a number of conditions precedent to the obligations of Petroteq Energy CA and Deloro, including, but not limited to, board of director and TSXV acceptance. Unless all such conditions are satisfied or waived by the party for whose benefit such conditions exist, to the extent they may be capable of waiver, the transactions contemplated by the MOU and the Debenture will not proceed. There is no assurance that the conditions will be satisfied or waived on a timely basis, or at all.

In addition, the Company announces that it has received subscriptions from two arm's length investors for 472,592 common shares of the Company for gross proceeds of US$127,599. The shares will be subject to a four month hold period from the date of issuance. The issuance is subject to final approval of the TSXV. The net proceeds will be used by the Company for general corporate purposes and working capital.