| MINERAL LEASES |
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TMC |
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SITLA |
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BLM |
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Mineral |
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Mineral |
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Mineral |
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Lease |
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Lease |
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Lease |
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Total |
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| Cost |
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| August 31, 2019 |
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$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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| Additions |
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- |
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- |
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- |
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- |
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| August 31, 2020 |
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11,091,388 |
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|
|
19,755 |
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|
|
23,800,000 |
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|
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34,911,143 |
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| Additions |
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- |
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- |
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- |
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- |
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| August 31, 2021 |
|
$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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| Accumulated Amortization |
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| August 31, 2019, 2020 and 2021 |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
- |
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| Carrying Amounts |
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| August 31, 2019 |
|
$ |
11,091,388 |
|
|
$ |
19,755 |
|
|
$ |
23,800.000 |
|
|
$ |
34,911,143 |
|
| August 31, 2020 |
|
$ |
11,091,388 |
|
|
$ |
19,755 |
|
|
$ |
23,800,000 |
|
|
$ |
34,911,143 |
|
| August 31, 2021 |
|
$ |
11,091,388 |
|
|
$ |
19,755 |
|
|
$ |
23,800,000 |
|
|
$ |
34,911,143 |
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Subsequent to year end, the Company
acting through its indirect wholly owned subsidiaries TMC and Petroteq Oil Recovery, LLC (“POR”), and Valkor Energy LLC (“Valkor”),
have entered into an agreement governing reciprocal assignment of mineral leases dated as of October 15, 2021 under which TMC and POR
agreed to assign all of its interest in the TMC mineral leases and the short term mining lease dated august 10, 2020 as amended on July
1, 2021, sub-leased from Valkor and two mineral leases entered into between the State of Utah’s School and Institutional Trust Land
Administration (“SITLA”), as lessor, and POR, as lessee, covering lands in Asphalt Ridge that largely adjoin the lands held
under the TMC Mineral Lease and Valkor agreed to assign to TMC Capital LLC, the record lease title and all of its rights and interest
under three SITLA Utah state oil sands leases located in an area referred to as “Asphalt Ridge Northwest” in Uintah County
Utah.
In addition, the Corporation,
acting through TMC, and Valkor entered into an Agreement and Assignment of Participation Rights in Mineral Leases and Properties, dated
as of October 15, 2021, in which Valkor agreed to grant to TMC a right to participate in any oil
sands development operations conducted by Valkor in the future on or within the privately owned Temple Mountain Lease; and the Company,
acting through TMC and Valkor entered into an Agreement Governing Assignment of Operating Rights Under Utah State Mineral Leases, dated
as of October 15, 2021, in under which TMC agreed to assign to Valkor all of the operating rights
under the Asphalt Ridge North West Leases at depths and intervals located 500 feet or more below the surface, with TMC reserving the right
to participate in (a) any exploratory or production operation conducted by Valkor at the deeper depths or intervals (below 500 feet from
the surface) at and with up to a 50% working interest, and (b) in any oil sands processing plant proposed by either party at up to a 50%
ownership interest in any such plant.
The assignment of the SITLA leases
are subject to approval by SITLA before the agreement comes into effect. See Subsequent events note 34.
Effective August 10, 2020, the TMC mineral
lease was terminated and a new Short-Term Mining Lease agreement between Valkor and Asphalt Ridge, Inc was entered into with a back to
back Short-Term Mining and Mineral sub-lease entered into between Valkor and TMC, whereby all of the rights and obligations of the lease
were sub-let to TMC.
The salient terms of the lease were
as follows:
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1. |
The exclusive right and privilege during the term of this Sublease to explore for and mine by any methods now known or hereafter developed, extract and sell or otherwise dispose of, any and all asphalt, bitumen, maltha, tar sands, oil sands (“Tar Sands”) and any and all other minerals of whatever kind or nature which are associated with or contained in any Tar Sands deposit, whether hydrocarbon, metalliferous, non-metalliferous or otherwise, including, but not limited to, gold, silver, platinum, sand and clays on and in the Property, and whether heretofore known or hereafter discovered (collectively, “Minerals”), from the ground surface to a depth of 3,000 feet above Mean Sea level (MSL), together with the products and byproducts of the processing of the Minerals, and together with the right to use so much of the surface of the Property as may be necessary in the exercise of said rights and in furtherance of the purposes expressed herein, including ingress and egress, and together with the right to construct on the Property such improvements as may be reasonably necessary to the exploration for and the mining, extraction, removal, processing, beneficiating, sale or other disposition of the Minerals, but not including the construction of any new roads without the prior written consent of Sublessor; and |
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2. |
The right to use any or all of the Water Rights at any time during the term of this Sublease in conducting its activities as provided for herein; provided that approval of change applications may need to be obtained in order to allow use of the Water Rights on the Property for mining purposes. |
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3. |
The term of the sub-lease is for the period ending June 30, 2021 unless the Short Term Mining Lease between Valkor and Asphalt Ridge is terminated earlier. |
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4. |
During the Term and subject to the Lessor Reserved Rights, Sublessee shall have the right to explore, develop, mine, drill, pump, process, produce and market the Minerals in, on, or under the Property, including any existing stockpiles or dumps, whether by drilling, surface, strip, contour, quarry, bench, underground, solution, in situ or other mining methods, and in connection therewith, Sublessee shall have the right to conduct the following activities and operations (“Operations”) on the Property in accordance with the terms of this Sublease and applicable laws and regulations: |
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a. |
To mine, process, mill, beneficiate,
treat, concentrate, extract, refine, leach, convert, upgrade, prepare for market, any and all Minerals mined or otherwise extracted from
the Property; |
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b. |
To temporarily store or permanently
dispose on the Property Minerals, water, waste or other materials resulting from Operations on the Property; |
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c. |
to use and develop any and
all ditches, flumes, water and Water Rights and appurtenant to the Property; and |
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d. |
to use so much of the surface
and surface resources of the Property as may be reasonably necessary in the exercise of said rights, or which Sublessee may deem desirable
or convenient, including rights of ingress and egress in connection with its operations on the Property. During the term of the lease
the sub-lessee has the right to use any or all of the Water Rights at any time during the term of this Sublease in conducting its activities
as provided for herein; provided that approval of change applications may need to be obtained in order to allow use of the Water Rights
on the Property for mining purposes. |
| | 5. | TMC will pay Valkor the sum of $25,000 on lease commencement, and thereafter $15,000 per month until expiration of the lease |
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6. |
TMC will pay a production royalty as follows: |
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a. |
For “Bitumen Product”
produced from Tar Sands mined or otherwise extracted from the Property shall be eight percent (8%) of the gross sales revenue received
by Sublessee from the sale of such Bitumen Product at the Property. As used herein, the term “Bitumen Product” means naturally
occurring oil in the Tar Sands that is sold in whatever form, including run-of-mine, screened, processed, or after the addition of any
additives and/or upgrading of the Bitumen Product |
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b. |
The Production Royalty on all
other Minerals produced from Bitumen Product mined or otherwise extracted from the Property and sold shall be eight percent (8%) of the
gross sales revenue received by Sublessee. Subject to the provisions of Paragraph 1, wherein sales of products and byproducts are wholly
accounted for, should sales occur to a third party purchaser that is engaged in marketing a variety of products or by-products made from
such materials, payments to Sublessor may vary. If Sublessee’s receipts are measurably greater than comparable sales by others
of similar products or byproducts which may be due to the nature of high end by-products such as frac sands produced and sold by the
third party, the Production Royalty to Sublessor shall be the greater of a 5% royalty on the gross value of the product and by-products
sold by the third party or 50% of the gross revenue received by Sublessee from the sale of such products or byproducts, as the case may
be. |
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c. |
The Production Royalty on oil
and gas, and associated hydrocarbons produced by Sublessee using standard oil and gas drilling recovery techniques above 3000 feet MSL
and sold shall be 1/6 of the gross market value. |
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d. |
Any sales of Minerals to third
parties shall be of such a nature that the sales price adequately represents the market value of all potential products or by-products. |
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e. |
Minerals shall be deemed sold
at the time they leave the Property or at the time the Minerals are transferred by Sublessee to an Affiliate. As used herein, “Affiliate”
means any business entity which, directly or indirectly, is owned or controlled by Sublessee or owns or controls Sublessee, or any entity
or firm acquiring Minerals from Sublessee otherwise than at arm’s-length. |
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7. |
Prior to commencing any Operations, Sublessee shall have obtained final approval of all necessary mining and reclamation plans from the Utah Division of Oil, Gas and Mining, or its successor agency (the “Division”) authorizing Sublessee’s Operations and shall have posted with and obtained approval from the Division of a surety bond or other financial guarantee (“Reclamation Surety”) in the amount and form acceptable to the Division and sufficient to guarantee Sublessee’s performance of reclamation in accordance with Utah laws and regulations. The amount of the surety bond or financial guarantee shall be periodically reviewed in accordance with Division’s regulations and, if the Division directs, increased or otherwise modified as directed by the Division. Sublessee shall keep Sublessor fully informed as to reclamation costs and bonding requirements and Sublessor’s approval of the bond amount shall be required. Sublessor will not unreasonably withhold such approval. |
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8. |
Under the terms of the Lease, Asphalt Ridge , Inc. has reserved the right at any time during the term of the Lease to convey all or part of the Property or the Water Rights, or rights therein, subject to the Lease and shall give Sublessor Notice of any such conveyance. This Sublease shall be subject to the right reserved by the Lessor as described herein. Upon Sublessor’s receipt of any sale or conveyance of the Property by Lessor, Sublessor shall promptly notify Sublessee in writing of any such conveyance. |
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(b) |
SITLA Mineral Lease (Petroteq
Oil Recovery, LLC mineral lease) |
On June 1, 2018, the Company acquired
mineral rights under two mineral leases entered into between the State of Utah’s School and Institutional Trust Land Administration
(“SITLA”), as lessor, and POR, as lessee, covering lands in Asphalt Ridge that largely adjoin the lands held under the TMC
Mineral Lease (collectively, the “SITLA Mineral Leases”). The SITLA Mineral Leases are valid until May 30, 2028 and have rights
for extensions based on reasonable production. The leases remain in effect beyond the original lease term so long as mining and sale of
the tar sands are continued and sufficient to cover operating costs of the Company.
Advanced royalty of $10 per acre are
due annually each year the lease remains in effect and can be applied against actual production royalties. The advanced royalty is subject
to price adjustment by the lessor after the tenth year of the lease and then at the end of each period of five years thereafter.
Production royalties payable are 8%
of the market price of marketable product or products produced from the tar sands and sold under arm’s length contract of sale.
Production royalties have a minimum of $3 per barrel of produced substance and may be increased by the lessor after the first ten years
of production at a maximum rate of 1% per year and up to 12.5%.
On January 18, 2019, the Company paid
$10,800,000 for the acquisition of 50% of the operating rights under U.S. federal oil and gas leases, administered by the U.S. Department
of Interior’s Bureau of Land Management (“BLM”) covering approximately 5,960 gross acres (2,980 net acres) within the
State of Utah. The total consideration of $10,800,000 was settled by a cash payment of $1,800,000 and by the issuance of 15,000,000 shares
at an issue price of $0.60 per share, amounting to $9,000,000.
On July 22, 2019, the Company acquired
the remaining 50% of the operating rights under U.S. federal oil and gas leases, administered by the BLM covering approximately 5,960
gross acres (2,980 net acres) within the State of Utah, for a total consideration of $13,000,000 settled by the issuance of 30,000,000
shares at an issue price of $0.40 per share, amounting to $12,000,000 and cash of $1,000,000, of which $100,000 has not been paid to date.
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