Strategic Oil & Gas Ltd. Announces Annual and Fourth Quarter 2017 Financial and Operating Results
March 29 2018 - 5:25PM
Strategic Oil & Gas Ltd. (“Strategic” or the “Company”)
(TSXV:SOG) is pleased to report financial and operating results for
the year and three months ended December 31, 2017. Detailed results
and additional information are presented in Strategic's
consolidated financial statements and related Management's
Discussion and Analysis ("MD&A") which will be available
through the Company's website at www.sogoil.com and on SEDAR at
www.sedar.com.
FINANCIAL AND OPERATIONAL SUMMARY
|
Three months ended December 31 |
|
Twelve months ended December 31 |
|
Financial ($thousands, except per share
amounts) |
2017 |
|
2016 |
|
% change |
|
2017 |
|
2016 |
|
% change |
|
Oil and natural gas
sales |
10,396 |
|
7,721 |
|
35 |
|
37,867 |
|
23,878 |
|
59 |
|
Funds from (used in)
operations (1) |
3,024 |
|
1,660 |
|
82 |
|
8,065 |
|
(219 |
) |
- |
|
Per share
basic (1) (2) |
0.07 |
|
0.06 |
|
17 |
|
0.17 |
|
(0.01 |
) |
- |
|
Cash provided by (used
in) operating activities |
490 |
|
(1,256 |
) |
- |
|
4,518 |
|
3,335 |
|
35 |
|
Per share
basic (2) |
0.01 |
|
(0.04 |
) |
- |
|
0.10 |
|
0.12 |
|
(17 |
) |
Net income (loss) |
(41,264 |
) |
48,510 |
|
- |
|
(89,502 |
) |
33,242 |
|
- |
|
Per share
basic (2) |
(0.89 |
) |
1.69 |
|
- |
|
(1.94 |
) |
1.21 |
|
- |
|
Per share
diluted (2) |
(0.89 |
) |
0.62 |
|
- |
|
(1.94 |
) |
0.55 |
|
- |
|
Net capital
expenditures |
3,361 |
|
9,018 |
|
(63 |
) |
48,200 |
|
29,279 |
|
65 |
|
Adjusted working
capital at December 31 (1) |
13,087 |
|
49,956 |
|
(74 |
) |
13,087 |
|
49,956 |
|
(74 |
) |
Net debt at December 31
(1) |
95,801 |
|
51,141 |
|
87 |
|
95,801 |
|
51,141 |
|
87 |
|
Operating |
|
|
|
|
|
|
Average daily
production |
|
|
|
|
|
|
Crude oil
(bbl per day) |
1,819 |
|
1,487 |
|
22 |
|
1,799 |
|
1,415 |
|
27 |
|
Natural
gas (mcf per day) |
3,633 |
|
2,233 |
|
63 |
|
3,822 |
|
2,359 |
|
62 |
|
Barrels
of oil equivalent (boe per day) |
2,424 |
|
1,859 |
|
30 |
|
2,436 |
|
1,808 |
|
35 |
|
Average prices |
|
|
|
|
|
|
Oil &
NGL ($ per bbl) |
58.71 |
|
51.38 |
|
14 |
|
52.69 |
|
42.33 |
|
24 |
|
Natural
gas ($ per mcf) |
1.71 |
|
3.36 |
|
(49 |
) |
2.34 |
|
2.27 |
|
3 |
|
Operating netback ($
per boe) (1) |
|
|
|
|
|
|
Oil and
natural gas sales |
46.61 |
|
45.13 |
|
3 |
|
42.59 |
|
36.09 |
|
18 |
|
Royalties |
(4.97 |
) |
(6.00 |
) |
(17 |
) |
(4.75 |
) |
(4.96 |
) |
(4 |
) |
Operating
expenses |
(20.96 |
) |
(19.87 |
) |
5 |
|
(21.05 |
) |
(21.64 |
) |
(3 |
) |
Transportation expenses |
(0.71 |
) |
(1.01 |
) |
(30 |
) |
(1.11 |
) |
(0.84 |
) |
32 |
|
Operating Netback (1) |
19.97 |
|
18.25 |
|
9 |
|
15.68 |
|
8.65 |
|
81 |
|
Common Shares (2) (thousands) |
|
|
|
|
|
|
Common shares
outstanding, end of period |
46,391 |
|
43,978 |
|
5 |
|
46,391 |
|
43,978 |
|
5 |
|
Weighted average common
shares (basic) |
46,391 |
|
28,775 |
|
61 |
|
46,181 |
|
27,533 |
|
68 |
|
Weighted
average common shares (diluted) |
46,391 |
|
81,616 |
|
(43 |
) |
46,181 |
|
71,700 |
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Funds from operations,
adjusted working capital, net debt and operating netback are
Non-GAAP measures; see “Non-GAAP measures” in management’s
discussion and analysis. |
(2) |
|
Adjusted for the share
consolidation on a 20:1 basis announced on March 6, 2017. |
|
|
|
FOURTH QUARTER SUMMARY
- Average daily production increased 30% from 1,859 boe/d for the
three months ended December 31, 2016 to 2,424 boe/d for the current
quarter primarily due to new production from Muskeg drilling
activities over the past year.
- Funds from operations increased 82% to $3.0 million from $1.7
million for the same quarter last year due to a $2.7 million
increase in revenue resulting from higher production levels and an
increase in realized oil prices.
- Capital expenditures of $3.4 million were incurred in the
quarter, mostly related to completing and equipping wells drilled
in the third quarter of 2017, expenditures on gathering pipelines
and on pad construction in preparation for the 2018 winter drilling
program.
- In the third quarter of 2017, the Company drilled a horizontal
well at west Marlowe testing the Slave Point formation. The well
was drilled with a 1,200 meter lateral length and 10 stages were
completed. The well was put on production early in the fourth
quarter. With limited drawdown the well’s initial production was 46
boe/d (75% oil) for the first 90 days.
- Strategic continued to maintain discipline with its capital
program. At December 31, 2017, the Company had $13.1 million in
cash and adjusted working capital. The capital program approved for
the first half of 2018 will be funded with cash on hand and cash
generated from operating activities.
ANNUAL SUMMARY
- Funds flow from operations
increased to $8.1 million in 2017 from funds used in
operations of $0.2 million in 2016 as revenue increased due to
higher commodity prices and higher production levels arising from
drilling and completion activities during 2017.
- Production increased 35% to 2,436
boe/day from 1,808 boe/day in 2016 due to production additions from
new Muskeg wells, and despite significant delays in well
completions during the first half of 2017 due to unavailability of
frac services.
- Capital expenditures increased to
$48.2 million in 2017 from $29.3 million for 2016 as the Company
accelerated the development of its Muskeg oil resource. A total of
8 horizontal wells were drilled including 7 Muskeg wells and 1
Slave Point well. Capital spending for the year also included
the construction of 4 kilometers of high grade road and pipeline to
tie-in the 14-35 Muskeg well drilled in 2016.
- Proved and probable reserves at
December 31, 2017, as determined by the Company’s independent
reserves evaluators McDaniel and Associates Ltd. (“McDaniel”),
decreased 18% to 16.0 MMboe compared to 19.6 MMBoe at year-end 2016
due primarily to 3.0 MMboe of negative technical revisions related
to the shortfall in performance from Muskeg wells drilled in 2017.
Net present value of proved and probable reserves using McDaniel’s
forecast prices and costs decreased to $130.1 million from $194.4
million at December 31, 2016. The decrease is attributable to the
lower reserves volumes, a decline in the forward price deck for oil
and gas and an extension in the timeline for development of the
Company’s undeveloped reserves. The Company does not believe
that recent 2017 wells results are reflective of the potential of
the Muskeg play, and has adjusted its drilling and completion
techniques in 2018, with the goal of improving well design and
restoring productivity.
- Strategic incurred a net loss of
$89.5 million compared to net income of $33.2 million in 2016. The
loss was driven by an impairment charge of $58.8 million related to
lower reserves values at Marlowe and a loss on revaluation of
decommissioning liabilities of $7.2 million.
PERFORMANCE OVERVIEW, STRATEGY AND
OUTLOOK
In 2017 Strategic was focused on development of
the Muskeg resource, as well as exploring additional light oil
zones as secondary production targets at Marlowe. In total 7 Muskeg
horizontal development wells and 1 Slave Point well were drilled
during the year. As a result of these activities, average
production increased 35% from 2016 to 2,436 boe/d, and funds from
(used in) operations increased from $(0.2) million in 2016 to $8.1
million ($0.17 per basic share) in 2017.
In planning the first quarter 2017 drilling
program, the Company made several adjustments to the well placement
targeting lower in the pay zone to achieve a faster drilling pace.
Strategic management has completed a detailed review of the
drilling and production techniques used in this program and
believes that certain adjustments made may have limited the
productivity of those Muskeg wells drilled. As a result, production
levels in 2017 did not meet internal expectations. In addition,
2017 year-end proved and probable reserves were impacted by 3.0
MMBoe of negative technical revisions to proved and probable
reserves, related to estimated reserves for the wells drilled the
year and future undeveloped drilling locations. The Company does
not believe that 2017 drilling results are reflective of the
potential of the Muskeg play and has adjusted its drilling and
completion techniques, with the goal of improving well design and
restoring productivity in 2018 and future capital programs.
In the first quarter of 2018, Strategic drilled
and completed two Muskeg wells at West Marlowe along the high
potential Muskeg light oil corridor. The Company refined its
completion techniques to complete 30 stages per well using a proven
pinpoint shiftable sleeve system.
Both wells were completed in the first quarter,
and testing was limited to the stages that were completed using the
new frac design. Well 01-02 was production tested with 13 out of 30
stages open. After a 3 day cleanup period the well produced an
average of 473 boe/d (82% oil) for 11 days. The water cut continued
to drop during the test period, ending at approximately 55%. The
well is currently shut-in while the remaining stages are opened.
Well 05-01 was production tested with 19 out of 30 stages open.
Initial volumes were limited by the size of the pumping unit used,
however after a 5 day cleanup period the well produced an average
of 148 boe/d (90% oil) for 12 days, and over the last 3 test days
the average production rate increased to 227 boe/d (89% oil) with a
76% water cut. The Company is encouraged by these initial rates
given that just over half of the total stages completed are
currently open and contributing to production volumes. Strategic
intends to open the remaining stages, put the wells on production
and provide an update on initial production rates in the near
future.
About Strategic
Strategic is a junior oil and gas company
committed to becoming a premier northern oil and gas operator by
exploiting its light oil assets primarily in northern
Alberta. The Company maintains control over its resource base
through high working interest ownership in wells, construction and
operation of its own processing facilities and a significant
undeveloped land and opportunity base. Strategic’s primary
operating area is at Marlowe, Alberta. Strategic’s common
shares trade on the TSX Venture Exchange under the symbol SOG.
For more information, please contact:
Cody
SmithCOO and Interim CEOStrategic Oil & Gas Ltd.1100, 645 7th
Avenue SWCalgary, AB T2P 4G8Telephone: 403.767.9000Fax:
403.767.9122 |
|
Aaron
ThompsonCFO |
|
|
|
Test production ratesAny
references in this news release to initial production or test rates
are useful in confirming the presence of hydrocarbons, however,
such rates are not necessarily determinative of the rates at which
such wells will continue production. These flow-back or test
results are quoted on a raw basis before shrinkage on natural gas
volumes and may not be indicative of long-term well performance or
ultimate recovery. While encouraging, readers are cautioned not to
place reliance on such rates in estimating the aggregate production
for the Company. Total corporate production volumes include natural
gas shrinkage.
Forward-Looking
StatementsCertain statements in this release constitute
forward-looking information under applicable securities
legislation. Forward-looking information typically contains
statements with words such as "anticipate", "believe", "estimate",
"will", "may", "expect", "plan", "schedule", "intend", "propose",
or similar words suggesting future outcomes or an outlook.
Forward-looking information in this release includes, but is not
limited to:
- projected production rates and sales volumes and the timing
thereof;
- forecast capital expenditures, operating costs per BOE,
abandonment and reclamation costs and transportation costs per
BOE;
- exploration, development, and associated operational plans and
strategies;
- availability of current working capital and the timing and
source of funds for the capital program for the first half of 2018
and future periods;
- potential profitability and productivity of the Company’s asset
base;
- the impact of cost reduction initiatives;
- the impact of adjustments to drilling and completion
techniques; and
- general business strategies and objectives.
Such forward-looking information is based on a
number of assumptions which may prove to be incorrect. Assumptions
have been made with respect to the following matters, in addition
to any other assumptions identified in this release:
- future natural gas and liquids prices;
- royalty rates, taxes and capital, operating, general and
administrative and other costs;
- foreign currency exchange rates and interest rates;
- general business, economic and market conditions;
- the ability of the Company to obtain the required capital to
finance its exploration, development and other operations and meet
its commitments and financial obligations;
- the ability of Strategic to obtain equipment, services,
supplies and personnel in a timely manner and at an acceptable cost
to carry out its activities;
- the ability of Strategic to secure adequate product processing,
transportation, and storage capacity on acceptable terms;
- the ability of Strategic to market its oil and natural gas
successfully to current and new customers;
- the ability of Strategic obtain drilling success (including in
respect of anticipated production volumes, reserves additions and
resource recoveries) and operational improvements, efficiencies and
results consistent with expectations;
- the timely receipt of required governmental and regulatory
approvals; and
- anticipated timelines and budgets being met in respect of
drilling programs and other operations (including well completions
and tie-ins and the construction, commissioning and start-up of new
and expanded facilities).
Although Strategic believes that the
expectations reflected in such forward-looking information is
reasonable, undue reliance should not be placed on them as the
Company can give no assurance that such expectations will prove to
be correct. Forward-looking information is based on expectations,
estimates and projections that involve a number of risks and
uncertainties which could cause actual results to differ materially
from those anticipated by Strategic and described in the
forward-looking information. The material risks and uncertainties
include, but are not limited to:
- fluctuations in natural gas and liquids prices;
- changes in foreign currency exchange rates and interest
rates;
- the uncertainty of estimates and projections relating to future
revenue, future production, reserve additions, resource recoveries,
royalty rates, taxes and costs and expenses;
- the ability to secure adequate product processing,
transportation, and storage capacity on acceptable terms;
- operational risks in exploring for, developing and producing,
oil and natural gas;
- the ability to obtain equipment, services, supplies and
personnel in a timely manner and at an acceptable cost;
- potential disruptions, delays or unexpected technical or other
difficulties in designing, developing, expanding or operating new,
expanded or existing facilities;
- processing and pipeline infrastructure outages, disruptions and
constraints;
- risks and uncertainties involving the geology of oil and gas
deposits;
- the uncertainty of reserves and resources estimates;
- general business, economic and market conditions;
- the ability to generate sufficient cash flow from operations
and obtain financing to fund planned exploration, development and
operational activities and meet current and future commitments and
obligations;
- changes in, or in the interpretation of, laws, regulations or
policies (including environmental laws);
- the ability to obtain required governmental or regulatory
approvals in a timely manner, and to enter into and maintain leases
and licenses;
- the effects of weather and other factors including wildlife and
environmental restrictions which affect field operations and
access;
- the timing and cost of future abandonment and reclamation
obligations and potential liabilities for environmental damage and
contamination;
- uncertainties regarding aboriginal claims and in maintaining
relationships with local populations and other stakeholders;
- the outcome of existing and potential lawsuits, regulatory
actions, audits and assessments; and
- other risks and uncertainties described elsewhere in
Strategic’s other filings with Canadian securities
authorities.
The foregoing list of risks is not exhaustive.
For more information relating to risks, see the section titled
"risk factors" in Strategic's current annual information form. The
forward-looking information contained in this release is made as of
the date hereof and, except as required by applicable securities
law, Strategic undertakes no obligation to update publicly or
revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise.
Basis of PresentationThis discussion and
analysis of Strategic’s oil and natural gas production and related
performance measures is presented on a working-interest, before
royalties basis. For the purpose of calculating unit information,
the Company's production and reserves are reported in barrels of
oil equivalent (boe) and boe per day (boed). Boe may be misleading,
particularly if used in isolation. A boe conversion ratio for
natural gas of 6 Mcf: 1 boe has been used, which is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not necessarily represent a value equivalency
at the wellhead. As the value ratio between natural gas and crude
oil based on the current prices of natural gas and crude oil is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
Non-GAAP MeasurementsThe Company utilizes
certain measurements that do not have a standardized meaning or
definition as prescribed by IFRS and therefore may not be
comparable with the calculation of similar measures by other
entities, including net debt, operating netback and funds from
operations. Readers are referred to advisories and further
discussion on non-GAAP measurements contained in the Company’s
MD&A.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
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