Strategic Oil & Gas Ltd. (“Strategic” or the “Company”) (TSXV:
SOG) is pleased to report financial and operating results for the
three and nine months ended September 30, 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.
FINANCIAL AND OPERATIONAL SUMMARY
|
Three months ended September 30 |
Nine months ended September 30 |
Financial ($thousands, except per share
amounts) |
2018 |
|
2017 |
|
% change |
2018 |
|
2017 |
|
% change |
Oil and natural gas
sales |
8,605 |
|
8,271 |
|
4 |
29,325 |
|
27,471 |
|
7 |
Funds from (used in)
operations (1) |
(809 |
) |
(333 |
) |
143 |
794 |
|
5,043 |
|
(84) |
Per share basic
(1) (2) |
(0.02 |
) |
(0.01 |
) |
100 |
0.02 |
|
0.11 |
|
(82) |
Cash provided by
operating activities |
963 |
|
2,149 |
|
(55) |
2,707 |
|
4,029 |
|
(33) |
Per share basic
(2) |
0.02 |
|
0.05 |
|
(60) |
0.06 |
|
0.09 |
|
(33) |
Net loss |
(21,482 |
) |
(36,779 |
) |
(42) |
(33,045 |
) |
(48,237 |
) |
(31) |
Per share basic
(2) |
(0.46 |
) |
(0.79 |
) |
(42) |
(0.71 |
) |
(1.05 |
) |
(32) |
Net capital
expenditures |
2,506 |
|
13,991 |
|
(82) |
12,481 |
|
44,840 |
|
(72) |
Working capital
(deficiency) (comparative figure is as of December 31, 2017) |
(1,159 |
) |
13,087 |
|
- |
(1,159 |
) |
13,087 |
|
- |
Net debt (comparative
figure is as of December 31, 2017) (1) |
115,288 |
|
95,801 |
|
20 |
115,288 |
|
95,801 |
|
20 |
Operating |
|
|
|
|
|
|
Average daily
production |
|
|
|
|
|
|
Crude oil (bbl
per day) |
1,345 |
|
1,806 |
|
(26) |
1,567 |
|
1,793 |
|
(13) |
Natural gas (mcf
per day) |
2,364 |
|
3,472 |
|
(32) |
2,709 |
|
3,886 |
|
(30) |
Barrels of oil
equivalent (boe per day) |
1,739 |
|
2,384 |
|
(27) |
2,019 |
|
2,440 |
|
(17) |
Average prices |
|
|
|
|
|
|
Oil & NGL,
before risk management ($ per bbl) |
67.30 |
|
46.63 |
|
44 |
65.79 |
|
50.62 |
|
30 |
Natural gas ($
per mcf) |
1.26 |
|
1.64 |
|
(23) |
1.59 |
|
2.54 |
|
(37) |
Operating netback ($
per boe) (1) |
|
|
|
|
|
|
Oil and natural
gas sales |
53.77 |
|
37.70 |
|
43 |
53.22 |
|
41.24 |
|
29 |
Royalties |
(10.79 |
) |
(3.94 |
) |
174 |
(9.45 |
) |
(4.67 |
) |
102 |
Operating
expenses |
(22.53 |
) |
(25.65 |
) |
(13) |
(24.66 |
) |
(21.08 |
) |
17 |
Transportation expenses |
(0.72 |
) |
(1.41 |
) |
(49) |
(0.64 |
) |
(1.25 |
) |
(49) |
Operating
Netback (1) |
19.73 |
|
6.70 |
|
196 |
18.47 |
|
14.24 |
|
30 |
Common Shares (2) (thousands) |
|
|
|
|
|
|
Common shares
outstanding, end of period |
46,421 |
|
46,391 |
|
- |
46,421 |
|
46,391 |
|
- |
Weighted
average common shares (basic & diluted) |
46,421 |
|
46,391 |
|
- |
46,407 |
|
46,111 |
|
1 |
(1)
Funds from operations, net debt and operating netback are Non-GAAP
measures; see “Non-GAAP measures” in this
MD&A.(2)
Adjusted for the share consolidation on a 20:1 basis on March 6,
2017.
PERFORMANCE OVERVIEW AND
OUTLOOK
On August 29, 2018, the Company announced that a
special committee of the board of directors (the “Committee”) has
been established to consider potential strategic alternatives
available to Strategic. The Committee is comprised of substantially
all of the independent directors of the Company. In
conjunction with the special alternatives process, Strategic
received an offer to restructure and provide additional capital to
the Company as outlined below.
Potential recapitalization transactions
On November 5, 2018, Strategic announced that
the Company’s controlling shareholders (the “GMT Funds”) signed a
letter of intent to: (i) provide a loan to the Company of up to $30
million and (ii) to settle their existing convertible debentures of
the Company by way of a shares for debt settlement agreement
(collectively, “the Recapitalization Transactions”). In
addition, certain other holders of convertible debentures have also
agreed to settle their existing convertible debentures on the same
terms as the GMT Funds. Strategic has entered into shares for debt
settlement agreements with holders of 96% of the existing
convertible debentures.
The loan by the GMT funds and certain other
investors into Strategic is expected to take the form of: (i) a
first tranche of $15 million in 1.5 year first lien secured notes
bearing interest at 12% per annum and payable quarterly; and (ii) a
second $15 million tranche of notes on the same terms as the first
tranche (the second tranche being callable by the Company on the
occurrence of certain events).
In consideration of the Investment, Strategic
will issue to the GMT Funds $5 million of common share purchase
warrants ("Bonus Warrants") for each tranche of the Investment, at
a strike price equal to the 20 day volume weighted average trading
price of the Common Shares as of the closing date of the
Recapitalization Transactions for a period of 5 years.
Strategic will also pay a financing origination fee to the GMT
Funds in the amount of 2% of the total funds made available to
Strategic. The parties have also agreed to a $3 million break
fee if the Recapitalization Transactions are not completed as a
result of Strategic sourcing an alternative financing structure
prior to closing.
Pursuant to the shares for debt settlement
agreements, Strategic has agreed to settle approximately $111
million of the $116 million of outstanding debentures (including
current interest and notes issued in satisfaction of interest on a
payment in kind basis) in exchange for approximately 1,443,452,300
common shares of the Company at a deemed price of $0.0773 per
share. Assuming the conversion of all of the Company's
outstanding convertible debentures, it is expected that current
shareholders would own approximately 3% of the Company and former
debenture holders would own approximately 97% of the post closing
issued and outstanding common shares of Strategic.
It is a condition of the Recapitalization
Transactions that the remaining holders of convertible debentures
are offered the opportunity to convert their debentures to common
shares at the same conversion price and that a minimum of 98% of
the principal amounts of the debentures are so converted.
Strategic’s new management team is encouraged by
the additional investment provided by GMT funds and believes the
Recapitalization Transactions significantly reduce the Company’s
leverage and annual interest costs while providing new capital to
continue the development of the Muskeg light oil resource.
QUARTERLY SUMMARY
- Capital expenditures of $2.5
million were incurred in the quarter, including a plant turnaround
at the 9-17 processing facility, minor pipeline upgrades and
compression testing for the debottleneck project.
- Revenues increased 4% from the
third quarter of 2017 to $8.6 million for the period due to an
increase in realized oil prices, which were partially offset by
lower production. The average WTI oil price for the quarter was US
$66.97/bbl. Revenues for the nine months ended September 30, 2018
increased by 7% to $29.3 million compared to $27.5 million for the
comparative period in 2017 due to an increase in realized oil
prices.
- Despite higher revenues, funds used
in operations increased to $0.8 million for the quarter from $0.3
million for the three months ended September 30, 2017. The increase
was despite a substantial decrease in operating costs, and was
related to cash interest paid on convertible debentures and higher
royalty rates in 2018. Interest on the debentures was paid in kind
in 2017.
- Average production decreased 27%
from the third quarter of 2017 to 1,739 boe/d for the third quarter
of 2018 due to a slower pace of drilling activity, as only 2 Muskeg
wells were drilled in 2018 compared to 5 wells drilled in the first
half of 2017.
- On July 30, 2018, the Company sold
certain oil and gas assets in northern British Columbia and
southern Alberta for a nominal consideration. The carrying value of
the disposed assets was minimal, but decommissioning liabilities
were reduced by $2.1 million and therefore a $2.0 million gain on
sale was recorded in the current quarter.
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 & Chief Executive Officer |
|
|
|
Aaron ThompsonChief Financial Officer |
|
|
|
Strategic Oil & Gas Ltd.1100, 645 7th Avenue SWCalgary, AB T2P
4G8 |
|
Telephone: 403.767.9000Fax: 403.767.9122 |
|
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:
- Potential Recapitalization Transactions and their impact on
development, leverage and interest costs;
- 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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