CALGARY, ALBERTA–(Marketwired – May 16, 2017) – Strategic Oil & Gas Ltd. (“Strategic” or the “Company”) (TSX VENTURE:SOG) announces results from its first quarter drilling program and reports financial and operating results for the three months ended March 31, 2017. Detailed results are presented in Strategic’s interim unaudited 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 first quarter include:
- Strategic tested five new Muskeg horizontal wells which are still cleaning up and have recovered approximately 50% of the completion fluids.
- Test rates from the newly drilled wells over a 48 hour period ranged from 300 boe/d to 800 boe/d (80% oil). Once tied-in, production from the new wells will be limited by pipeline pressure to approximately 1,500 boe/d.
- Funds from operations increased 44% to $2.4 million from $1.7 million for the fourth quarter of 2016;
- Closed a private placement of 2.4 million common shares for net proceeds of $5.3 million, further improving the Company’s cash position;
- Working capital at March 31, 2017 was $38.6 million.
FINANCIAL AND OPERATIONAL SUMMARY
|Three months ended March 31|
|Financial ($thousands, except per share amounts)||2017||2016||% change|
|Oil and natural gas sales||8,888||4,705||89|
|Funds from (used in) operations (1)||2,383||(2,180||)||–|
|Per share basic (1)||0.05||(0.08||)||–|
|Cash provided by (used in) operating activities||50||(1,474||)||–|
|Per share basic||0.00||(0.05||)||–|
|Net loss (2)||(4,440||)||(3,483||)||27|
|Per share basic & diluted||(0.10||)||(0.13||)||(23||)|
|Working capital (comparative figure is as of December 31, 2016)||38,637||47,323||(18||)|
|Net debt (comparative figure is as of December 31, 2016) (1)||49,989||37,166||35|
|Average daily production|
|Crude oil (bbl per day)||1,628||1,546||5|
|Natural gas (mcf per day)||3,872||2,534||53|
|Barrels of oil equivalent (boe per day)||2,273||1,968||15|
|Oil & NGL ($ per bbl)||53.86||30.22||78|
|Natural gas ($ per mcf)||2.86||1.96||46|
|Operating netback ($ per boe) (1)|
|Oil and natural gas sales||43.44||26.26||65|
|Operating Netback (1)||17.91||(0.32||)||(5,697||)|
|Common Shares (3) (thousands)|
|Common shares outstanding, end of period||46,374||27,116||71|
|Weighted average common shares (basic & diluted)||45,549||27,116||68|
|(1)||Funds from operations, net debt and operating netback are Non-GAAP measures; see “Non-GAAP measures” in this MD&A.|
|(2)||The comparative condensed statement of loss has been adjusted to reflect a $3.8 million adjustment to deferred tax recovery related to the issuance of convertible debentures.|
|(3)||Adjusted for the previously-announced share consolidation on a 20:1 basis.|
- Capital expenditures of $18.1 million were incurred in the quarter, primarily on drilling five horizontal Muskeg wells and pipeline construction at west Marlowe.
- Average daily production increased 15% from the first quarter of 2016, and 22% from the fourth quarter of 2016 to 2,273 for the three months ended March 31, 2017, primarily due to the Company’s four well Muskeg drilling program in the second half of 2016 and the 14-35 Muskeg well coming on production.
- Funds from operations increased significantly to $2.4 million for the three months ended March 31, 2017 from funds used in operations of $2.2 million for the first quarter of 2016, as higher commodity prices and production led to a $4.2 million increase in revenues.
- Strategic continued to implement operational efficiencies and reduce costs in the first quarter of 2017. Operating costs dropped $0.2 million and general and administrative (“G&A”) costs for the current period were reduced by $0.1 million compared to the first quarter of 2016. These reductions were partially offset by higher transportation costs due to increased natural gas production and oil trucking charges caused by a temporary shutdown of the Rainbow pipeline.
- The Company issued $3.7 million of additional convertible debentures as payment in kind of interest payable on February 28, 2017 to preserve cash while pursuing its capital program. At March 31, 2017, the Company had $42.4 million in cash and $38.6 million in working capital.
- Operating netbacks increased to $17.91/boe for the three months ended March 31, 2017 compared to ($0.32)/boe for the first quarter of 2016 primarily due to higher commodity prices and production levels, combined with lower operating expenses. As new oil volumes come on line from the five-well drilling program, fixed costs will be spread over a larger production base and Strategic anticipates that netbacks will continue to increase.
PERFORMANCE OVERVIEW, STRATEGY AND OUTLOOK
During the first quarter Strategic focused on the execution of its $30 million capital spending plan for the first half of 2017, which included drilling five horizontal Muskeg wells and the construction of a four kilometre pipeline to tie-in the 14-35 Muskeg well drilled in the first quarter of 2016. The pipeline project was completed in early February 2017.
The 2017 Muskeg wells were drilled with 1,900 metre lateral lengths and 20 stage completions, similar to the wells drilled in the second half of 2016. To date all five wells drilled in the first quarter have been completed and are being tied-in. Test rates from the newly drilled wells over a 48 hour period ranged from 300 boe/d to 800 boe/d (80% oil). Once tied-in, production from the new wells will be limited by pipeline pressure to approximately 1,500 boe/d.
The Company continued its cost reduction efforts in the current quarter, reducing operating costs and general and administrative (“G&A”) expenses by $0.2 million and $0.1 million, respectively from the first quarter of 2016. Strategic expects costs operating and G&A expenses to continue to drop on a per boe basis as production levels rise, increasing the Company’s netbacks.
Strategic raised $5.3 million through a private placement in January 2017 and had $38.6 million in working capital as of March 31, 2017. The Company intends to commence a $24 million third quarter capital program which includes drilling up to five additional horizontal wells. The Company has cash resources to continue to drill along its high-impact Muskeg development corridor at West Marlowe as part of the execution of its growth strategy in the second half of 2017.
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 relies on its extensive subsurface and reservoir experience to develop its asset base and grow production and cash flows while managing risk. 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.