April 11, 2019
David Sealock
Chief Executive Officer
Petroteq Energy Inc.
15165 Ventura Blvd., #200
Sherman Oaks, CA 91403
Re: Petroteq Energy Inc.
Amendment No. 1 to Registration Statement on Form 10-12G
Filed March 25, 2019
File No. 0-55991
Dear Mr. Sealock:
We have reviewed your amended registration statement and have the
following
comments. In some of our comments, we may ask you to provide us with
information so we
may better understand your disclosure.
Please respond to this letter by amending your registration statement
and providing the
requested information. If you do not believe our comments apply to your facts
and
circumstances or do not believe an amendment is appropriate, please tell us why
in your
response.
After reviewing any amendment to your registration statement and the
information you
provide in response to these comments, we may have additional comments. Unless
we note
otherwise, our references to prior comments are to comments in our March 8,
2019 letter.
Registration Statement on Form 10-12G/A
Business
Resources and Mining Operations, page 2
1. The tabular disclosure of the total, developed and undeveloped "net"
acreage relating to
the TMC Mineral Lease appears to be based on your working interest, less
the overriding
royalty interest granted to Temple Mountain Energy, Inc. If that is the
case, revise the
disclosure of your net acreage. For additional guidance on the
disclosure of gross and net
acreage, refer to the definitions under Item 1208(c) of Regulation S-K.
The TMC Mineral Lease, page 3
2. The working interest figure disclosed on page 4 relating to your
ownership in the TMC
David Sealock
FirstName LastNameDavid Sealock
Petroteq Energy Inc.
Comapany NamePetroteq Energy Inc.
April 11, 2019
April 2 2019 Page 2
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FirstName LastName
Mineral Lease appears to be your working interest, less an adjustment
for the overriding
royalty interest granted to Temple Mountain Energy, Inc. If that is
the case, revise the
disclosure of your working interest ownership to exclude any
adjustments for royalties
due to others.
3. Revise your disclosure to resolve the apparent inconsistency between
the 1.8% attributed
to the overriding royalty granted to Temple Mountain Energy, Inc. and
the comparable
disclosure of a 1.6% overriding royalty disclosed elsewhere on pages
F-17 and F-56 of
your filing.
4. Expand the disclosure relating to the average sales prices for the
production that occurred
during fiscal year 2015 to include the API gravity of the final
products sold.
5. Revise footnote (1) accompanying the tabular presentation of the
average sales prices and
production volumes for fiscal year 2015 to remove the reference to
those items such as
state severance (production), ad valorem and sales taxes and
third-party non-operating
interests if such items were not used in the determination of the
figures presented or tell us
why a revision to your disclosure is not needed.
6. To the extent that the figures provided for the average production
costs incurred during
2015 and 2018 include adjustments for ad valorem and/or sales taxes,
revise your
estimates to remove the impact of these taxes. Refer to Item
1204(b)(2) of Regulation S-
K.
7. We note your response to comment 2 and the disclosure provided on page
1 appears to
indicate that the entire 2,223 barrel difference between the
quantities produced and sold
during 2015 is attributable to your internal use of this portion of
your production as fuel to
power the generators that power the plant. Your response appears to be
inconsistent with
footnote (1) on page 4 which indicates that the 7,777.33 barrels of
production is also net
of any royalties, e.g. the 8% production royalty specified under the
TMC Mineral Lease
and the additional 1.6% overriding royalty payable to Temple Mountain
Energy, Inc.
The disclosure of production under Item 1204(a) of Regulation S-K
should only include
production (after adjustments for production that is consumed in
operations) that is owned
by the registrant and produced to its interest less royalties due to
other parties, or in other
words, the production volumes based on your working interest
ownership, less all
applicable royalties. Revise the disclosure of your production to
conform to the
requirements under Item 1204(a) of Regulation S-K or tell us why a
revision is not
necessary. For additional guidance on the requirements relating to
your disclosure of
production under Item 1204(a) of Regulation S-K, refer to Instructions
1 and 2 to Item
1204, respectively.
8. Tell us what consideration you have given to the portion of your oil
production consumed
as fuel in determining the average monthly production cost figures
presented for 2015 .
To the extent that a portion of the oil produced during 2018 was
consumed as fuel, this
David Sealock
FirstName LastNameDavid Sealock
Petroteq Energy Inc.
Comapany NamePetroteq Energy Inc.
April 11, 2019
April 3 2019 Page 3
Page 11,
FirstName LastName
comment also applies to your calculation of the average production
costs for 2018.
9. If your current and/or future operating plans include the use of a
portion of your
production as fuel in your plant operations, expand your disclosure to
include an
appropriate discussion and to the extent possible an estimate of the
percentage(s) of such
production to be consumed
10. Revise the figures shown on page 5 relating to the 2015 total
production costs for the
months of October, November and December to resolve the apparent
inconsistency with a
mathematical summation of the individual line item costs used to
arrive at these total cost
figures.
11. Expand your disclosure to include a reasonably detailed explanation of
the reason(s) for
the apparent difference in the average 2015 monthly production costs
shown in the tabular
presentation on page 4 and the comparable average 2015 monthly
production costs shown
in the tabular presentation on page 5.
12. Your disclosure indicates the potential to reduce your average
production costs through
various economies of scale such as bulk purchases. Expand your
disclosure to include
examples of the items that would be part of such bulk quantity
purchases.
13. Provide us with an explanation in reasonable detail supporting the
statement on page 5
included as part of your discussion of differences that may exist
between the
specifications of your crude oil and those of WTI crude oil that
"generally the higher the
API gravity, the higher the deduction."
14. Your disclosure appears to indicate that your current production sales
are made to a
purchaser who takes delivery at or near the plant largely due to the
relatively high cost
that would be incurred in transporting your crude oil to refining
centers in other states.
Expand your disclosure to clarify the extent to which local markets
exist that have
sufficient capacity to allow you to sell all of your current and
forecast future production to
purchasers who will take delivery at or near your processing facility.
Extraction Technology, page 7
15. Provide us with an explanation in reasonable detail supporting the
statement on page 7
that appears to indicate that diluents or blending agents, if used,
would "increase the
viscosity of the heavy oil extracted from the bitumen saturated ores."
16. We have read your response to comment 16 and are not in a position to
agree that your
characterization of the final sales product as a "finished crude oil"
meets the requirements
pursuant to the disclosure of production, by final product sold, under
Item 1204(a) of
Regulation S-K. In this regard, your final sales product is not a
naturally occurring crude
oil and is the result of a process in which bitumen is upgraded into a
new hydrocarbon
product, e.g. a synthetic oil, pursuant to the definition of oil and
gas producing activities
and the disclosure requirements for oil and gas production in Rule
4-10(a)(16)(i)(D) of
David Sealock
FirstName LastNameDavid Sealock
Petroteq Energy Inc.
Comapany NamePetroteq Energy Inc.
April 11, 2019
April 4 2019 Page 4
Page 11,
FirstName LastName
Regulation S-X and item 1204(a) of Regulation S-K, respectively.
Therefore, we reissue
prior comment 16.
The Oil Sands Market, page 8
17. We note your revised disclosure in response to comment 17, and we
reissue the comment
in part. Please revise the disclosure on page 9 to clarify whether the
tests of oil sands
samples from China, Indonesia and Jordan at your San Diego laboratory
were conducted
internally or by third parties. If these tests were conducted
internally, please revise your
disclosure on page 8 regarding "third party tests of the different
batches of the heavy oil
that have been produced" to clarify that only the Russian oil was
tested by a third party, or
otherwise please advise.
Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions, page 47
18. We note you added disclosure on page 53 regarding your March 5, 2019
and March 11,
2019 issuance of common stock to your directors and your Chairman,
respectively. Please
revise your disclosure of related party transactions to disclose these
and other agreements
with related parties. Refer to Items 404(a) and 404(d)(1) of
Regulation S-K.
Financial Statements - General, page F-1
19. We note that in response in prior comment 24, you now present your
financial statements
in accordance with accounting principles generally accepted in the
United States. We
further note that certain amounts in your financial statements have
changed, along with
the change in presentation. Please describe for us the accounting
policy differences that
led to these changes and explain how the accounting policy disclosures
in your U.S.
GAAP financial statements reflect these differences, in comparison to
the corresponding
disclosures in your IFRS financial statements.
20. We note that although you are now indicating your financial statements
are prepared in
accordance with US GAAP, several of your accounting policy disclosures
do not appear
to have been revised accordingly. For example, the language within
your discussion of
the impairment of assets, financial instruments and provisions
continues to reflect
guidance within IFRS. Please ensure that you have applied all of the
accounting
requirements of U.S. GAAP, and address the applicability of either the
successful efforts
method or full cost method of accounting for your oil and gas
activities. Please revise your
disclosures as necessary to discuss your significant U.S. GAAP
accounting policies.
Independent Auditor's Report, page F-38
21. We note that your independent public accountants audited your internal
control over
financial reporting as of August 31, 2018, and indicated in their
opinion that you
maintained effective internal control over financial reporting. Please
update your
David Sealock
Petroteq Energy Inc.
April 11, 2019
Page 5
disclosure on page 12, concerning your status as an emerging growth
company and the
corresponding exemptions from various public company reporting
requirements, to clarify
that you have elected to have your internal controls over financial
reporting audited by
your independent registered public accounting firm.
22. We note that although you prepared the U.S. GAAP financial statements
subsequent to
receiving our comment letter dated March 8, 2019, the date of the
report from your
independent public accountant continues to be dated February 11, 2019,
as previously
filed with the IFRS financial statements. Given the nature of the
change and differences in
various amounts in your financial statements, it is unclear why the
auditor would not have
updated or dual dated the audit report to coincide with and reflect
the additional
procedures performed, consistent with PCAOB AS 3110. Please discuss
the foregoing
with your auditor and either obtain and file an audit report that
conforms with this
guidance or explain how it was determined that no change to the date
was necessary, if
this is the view. Also address the application of this guidance as it
relates to any
incremental adjustments to conform with U.S. GAAP, and any incremental
U.S. GAAP
accounting policy disclosures.
You may contact Mark Wojciechowski, Staff Accountant, at 202-551-3759
or Karl
Hiller, Accounting Branch Chief, at 202-551-3686 if you have questions
regarding comments on
the financial statements and related matters. For questions regarding comments
on engineering
matters, you may contact John Hodgin, Petroleum Engineer, at 202-551-3699.
Please contact
Parhaum Hamidi, Staff Attorney, at 202-551-3421 or Kevin Dougherty, Staff
Attorney, at 202-
551-3271 with any other questions.
FirstName LastNameDavid Sealock Sincerely,
Comapany NamePetroteq Energy Inc.
Division of
Corporation Finance
April 11, 2019 Page 5 Office of Natural
Resources
FirstName LastName