Strategic Oil & Gas Ltd. (“Strategic” or the “Company”)
(TSXV:SOG) is pleased to report financial and operating results for
the three months ended March 31, 2018. Detailed results and
additional information are presented in Strategic's interim
condensed 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.
Highlights for the quarter include:
- Drilled two horizontal Muskeg development wells at west Marlowe
which commenced production in March, one month ahead of
schedule;
- Initial test rates in line with expectations and Muskeg type
curve (average 473 boe/d over an 11 day test for one well and
average of 388 boe/d over the last 4 days of a 19 day test for the
second well);
- Realized oil price increased 15% from the first quarter of
2017, driven by an average WTI oil price of US $62.87/bbl for the
current period.
FINANCIAL AND OPERATIONAL SUMMARY
|
|
Three months ended March 31 |
|
Financial ($thousands, except per share
amounts) |
|
|
|
2018 |
|
2017 |
|
% change |
|
Oil and natural gas
sales |
|
|
|
10,081 |
|
8,888 |
|
13 |
|
Funds from operations
(1) |
|
|
|
1,554 |
|
2,383 |
|
(35 |
) |
Per share basic
(1) (2) |
|
|
|
0.03 |
|
0.05 |
|
(40 |
) |
Cash provided by (used
in) operating activities |
|
|
|
769 |
|
50 |
|
1,438 |
|
Per share basic
(2) |
|
|
|
0.02 |
|
0.00 |
|
- |
|
Net loss |
|
|
|
(5,163 |
) |
(4,440 |
) |
16 |
|
Per share basic
(2) |
|
|
|
(0.11 |
) |
(0.10 |
) |
10 |
|
Net capital
expenditures |
|
|
|
9,161 |
|
18,067 |
|
(49 |
) |
Working capital
(comparative figure is as of December 31, 2017) |
|
|
|
264 |
|
10,251 |
|
(98 |
) |
Net debt (comparative
figure is as of December 31, 2017) (1) |
|
|
|
109,771 |
|
95,801 |
|
15 |
|
Operating |
|
|
|
|
|
|
|
|
|
Average daily
production |
|
|
|
|
|
|
|
|
|
Crude oil (bbl
per day) |
|
|
|
1,700 |
|
1,628 |
|
4 |
|
Natural gas (mcf
per day) |
|
|
|
2,902 |
|
3,872 |
|
(25 |
) |
Barrels of oil
equivalent (boe per day) |
|
|
|
2,183 |
|
2,273 |
|
(4 |
) |
Average prices |
|
|
|
|
|
|
|
|
|
Oil & NGL ($
per bbl) |
|
|
|
62.20 |
|
53.86 |
|
15 |
|
Natural gas ($
per mcf) |
|
|
|
2.17 |
|
2.86 |
|
(24 |
) |
Operating netback ($
per boe) (1) |
|
|
|
|
|
|
|
|
|
Oil and natural
gas sales |
|
|
|
51.30 |
|
43.44 |
|
18 |
|
Royalties |
|
|
|
(7.61 |
) |
(5.53 |
) |
38 |
|
Operating
expenses |
|
|
|
(25.93 |
) |
(18.57 |
) |
40 |
|
Transportation
expenses |
|
|
|
(0.64 |
) |
(1.43 |
) |
(55 |
) |
Operating Netback (1) |
|
|
|
17.12 |
|
17.91 |
|
(4 |
) |
Common Shares (2) (thousands) |
|
|
|
|
|
|
|
|
|
Common shares
outstanding, end of period |
|
|
|
46,402 |
|
46,374 |
|
- |
|
Weighted
average common shares (basic & diluted) |
|
|
|
46,396 |
|
45,549 |
|
2 |
|
(1) Funds from operations, adjusted working capital, net
debt and operating netback are Non-GAAP measures; see “Non-GAAP
measures” in the MD&A.(2) Adjusted for the share
consolidation on a 20:1 basis on March 6, 2017.
PERFORMANCE OVERVIEW
During the first quarter, Strategic was focused
on the execution of a two-well Muskeg development drilling program
at West Marlowe. The 1-2 and 5-1 wells were both drilled with a
1,900 metre lateral section and were completed with 28 and 30
stages, respectively. Initially only a fraction of the total stages
were opened on each well to assess contributions from the new frac
system employed. Initial production rates through testers averaged
473 boe/d (82% oil) for the 1-2 well on an 11-day test and 388
boe/d (83% oil) for the 5-1 well for the final 4 days of a 19 day
test period. The Company is encouraged by the unconstrained
deliverability of the wells and believes the new frac systems were
effective in linking net pay intervals within the Muskeg zone. The
wells are currently experiencing some surface restrictions due to
pipeline pressures. Strategic is actively evaluating alternatives
to debottleneck the system at west Marlowe to fully optimize the
new wells. Average rates over the first 30 days of production are
as follows:
|
IP30 |
Current rate |
Well |
Total (boe/d) |
% oil |
Total (boe/d) |
% oil |
1-2 |
309 |
86 |
% |
122 |
83 |
% |
5-1 |
165 |
87 |
% |
168 |
91 |
% |
Corporate production volumes decreased 10% from
the fourth quarter of 2017 to 2,183 boe/d for the current period
due to natural declines and a Company-operated pipeline being
evaluated at north Marlowe which resulted in a loss of 145 boe/d.
The decline was partially offset by production volumes from the new
Muskeg wells drilled in the first quarter.
Strategic had estimated a total of $9 million in
capital spending for the first half of 2018. First quarter capital
expenditures totaled $9.2 million, and the Company expects an
additional $1 million in spending in the second quarter to complete
the program, with the increase related to minor facilities projects
and additional completion costs incurred while monitoring the
effectiveness of the new frac design.
Strategic is encouraged by the production
potential of the latest Muskeg wells, and feels that the new
drilling and completion techniques were effective in correcting the
well placement and connectivity issues experienced with the 2017
drilling program. The Company is working on reducing surface
restrictions to enhance productivity of the west Marlowe area. The
information gained from the two-well winter program will be
incorporated into the next development plan, which is currently in
the planning stage.
As previously announced, the Company’s new CEO
Tony Berthelet started on May 21, 2018. Mr. Berthelet commented: “I
am excited to join Strategic at this point in the Company’s history
to lead the effort to realize value from the significant light oil
resource under our land base.”
QUARTERLY SUMMARY
- Capital expenditures of $9.2
million were incurred in the quarter, primarily related to the two
well Muskeg development drilling program and minor recompletion and
pipeline projects.
- Revenues increased 13% from the
first quarter of 2017 to $10.1 million for the period, due to
higher oil production and an increase in realized oil prices.
The average WTI oil price for the quarter was US $62.87/bbl, and
WTI prices are currently over US $70/bbl.
- Despite higher revenues, funds from
operations decreased to $1.6 million for the quarter from $2.4
million for the three months ended March 31, 2017 and $3.0 million
for the fourth quarter of 2017. The decrease was primarily related
to higher operating costs, higher royalty rates driven by the
increase in commodity prices and cash interest expense on the
Company’s convertible debentures starting March 1, 2018.
- Average production decreased 4%
from the first quarter of 2017 to 2,183 boe/d for the first three
months of 2018, as contributions from the two new Muskeg wells
drilled during the quarter were offset by downtime caused by
pipeline maintenance work, primarily at north
Marlowe.
- The Company issued $4.1 million of
additional convertible debentures as payment in kind of interest
payable on February 28, 2018 to preserve cash while pursuing its
capital spending program. The additional debentures have the same
terms as the original debentures except that they are convertible
into common shares of the Company at a price of $1.08 per
share.
STOCK OPTIONS
On May 22, 2018, Strategic issued 1.0 million
stock options to the incoming CEO of the Company. Each option
entitles the holder to acquire one common share of the Company for
a period of five years at a price of $1.08 per share. These options
are issued in accordance with the Company's incentive stock option
plan.
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:
Tony
BertheletPresident & CEO |
Aaron
ThompsonCFO |
Strategic Oil & Gas Ltd.1100, 645 7th Avenue SWCalgary, AB T2P
4G8 |
|
Telephone: 403.767.9000Fax: 403.767.9122 |
|
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:
- plans for debottlenecking the Marlowe field;
- future development plans;
- 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, including: future commodity 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 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 assumptions 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 commodity prices,
foreign currency exchange rates and interest rates; estimates and
projections relating to future revenue, future production, reserve
additions, resource recoveries, royalty rates, taxes and costs and
expenses; 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;
uncertainty of reserves and resources estimates; general business,
economic and market conditions; 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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