CALGARY, ALBERTA–(Marketwired – May 17, 2016) – Strategic Oil & Gas Ltd. (“Strategic” or the “Company”) (TSX VENTURE:SOG) reports financial and operating results for the three months ended March 31, 2016. Detailed results are presented in Strategic’s interim 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.
Strategic’s highlights for the first quarter include:
- Drilled 4 wells that delineated the Muskeg play up to 20 km away from current producing wells.
- Operating costs dropped $2.3 million, while general and administrative (“G&A”) costs were reduced by $0.8 million and transportation costs by $0.3 million.
- Closed an offering of convertible debentures (the “Debentures”) on February 29, 2016 for net proceeds of $92.6 million, eliminating bank debt and providing financial flexibility.
- Executed an asset exchange agreement for the rationalization of certain assets in the Bistcho area which will reduce liability and increase the Company’s overall LLR to above 2.
|FINANCIAL AND OPERATIONAL SUMMARY|
|Three months ended March 31|
|Financial ($thousands, except per share amounts)||2016||2015||% change|
|Oil and natural gas sales||4,705||10,422||(55||)|
|Funds from (used in) operations (1)||(2,180||)||1,439||–|
|Per share basic & diluted (1)||(0.00||)||0.00||–|
|Cash used in operating activities||(1,474||)||(3,598||)||(59||)|
|Per share basic & diluted||(0.00||)||(0.01||)||–|
|Per share basic & diluted||(0.01||)||(0.02||)||(50||)|
|Capital expenditures (excluding acquisitions)||8,296||7,526||12|
|Bank debt (comparative figure is as of December 31, 2015)||–||(42,857||)||(100||)|
|Net working capital (debt) (comparative figure is as of December 31, 2015) (1)||26,484||(54,024||)||–|
|Average daily production|
|Crude oil (bbl per day)||1,546||2,394||(35||)|
|Natural gas (mcf per day)||2,534||5,237||(52||)|
|Barrels of oil equivalent (boe per day)||1,968||3,267||(40||)|
|Oil & NGL, before risk management ($ per bbl)||30.22||41.98||(28||)|
|Oil & NGL, including risk management ($ per bbl)||30.22||51.34||(41||)|
|Natural gas ($ per mcf)||1.96||2.93||(33||)|
|Netback ($ per boe) (1)|
|Oil and natural gas sales||26.26||35.45||(26||)|
|Common Shares (thousands)|
|Common shares outstanding, end of period||542,319||542,319||–|
|Weighted average common shares (basic & diluted)||542,319||542,319||–|
- Funds from operations, net debt and operating netback are Non-GAAP measures; see “Non-GAAP measures” in the Company’s MD&A.
- Strategic continued to implement operational efficiencies and reduce costs in the first three months of 2016, in response to low commodity prices. Operating costs dropped $2.3 million or 36% compared to the first quarter of 2015, while general and administrative (“G&A”) costs were reduced by $0.8 million and transportation costs by $0.3 million.
- The Company closed an offering of convertible debentures (the “Debentures”) on February 29, 2016 for net proceeds of $92.6 million after transaction costs. The Debentures have a 5-year term, bear interest at 8% payable semi-annually (subject to, at the Company’s option, being paid-in-kind in equivalent principal amount of Debentures for the first two years) and are convertible into common shares of Strategic at a price of $0.09 per share. Proceeds from the offering were used to repay existing credit facilities, the bridge loan from the Company’s major shareholder and fund the winter capital program. Strategic had $26.5 million in working capital at March 31, 2016 which will fund ongoing operating and capital activities in the near term.
- Strategic executed an asset exchange agreement in the Bistcho area, assuming a 100% working interest in the Bistcho gas processing facility and 14 wells capable of production, and assigning 68 wellbores to its joint interest partner. As a result of this swap the Company will avoid significant near-term decommissioning liabilities at Bistcho and increase its corporate liability management ratio to over 2.0.
- Average daily production decreased 40% to 1,968 boe/d from 3,267 boe/d for the first quarter of 2015, due to the shut-in of the Bistcho/Cameron Hills property in February 2015 and a lack of drilling activity to offset natural production declines at Marlowe. Several planned workover and recompletion operations were deferred in the first quarter to preserve capital.
- Despite the cost reductions achieved, operating netbacks decreased to $(0.32)/boe from $7.60/boe for the three months ended March 31, 2015, primarily as a result of declines in realized oil and natural gas prices of 28% and 33% respectively. Funds used in operations were $2.2 million for the three months ended March 31, 2016, compared to funds from operations of $1.4 million for the first quarter of 2015. The lower prices combined with reduced production levels led to the negative funds flow in the current quarter.
- Capital expenditures of $8.3 million for the quarter were focused on a four well drilling program designed to preserve undeveloped lands, increase reserves and further delineate the Muskeg play at Marlowe. The drilling results yielded a 1,060 boe/d production test at a horizontal well and a core taken from a vertical well which identified 12.6 metres of net oil pay in the Muskeg zone. These positive results have extended the commercial limits and confirmed the significant productivity of the Muskeg play.
- Also included in capital expenditures is the acquisition of 8 sections of undeveloped land in south Marlowe along the Muskeg trend from a third party for nominal consideration. Drilling activity in the first quarter has held these lands for a five year period.
PERFORMANCE OVERVIEW, STRATEGY AND OUTLOOK
Strategic was active in the first quarter of 2016, drilling 4 appraisal wells which significantly enhanced the Company’s understanding of the Marlowe asset base. The Company also closed a major financing transaction, eliminating its bank debt and providing financial stability, as well as initial funding for development.
Commodity prices were extremely low in the current period, with WTI oil prices averaging US$33.45/bbl. Strategic responded to this challenging environment by reducing cash operating, transportation and G&A costs by $3.4 million or 38% compared to the first quarter of 2015. Runtime on the Muskeg wells has steadily increased, enabling the Company to minimize decline rates without significant workover expenditures. As a result of the recent increase in WTI oil prices and continued management of cash costs, Strategic’s funds from operations is at a break-even level.
The Company now believes it has delineated a significant portion of the 100% owned Muskeg resource at Marlowe and is committed to creating long-term value for shareholders through a disciplined spending approach on scalable drilling programs on its asset base. Strategic has successfully reduced drilling days and completion costs per well while increasing well performance and run time. The Company is in the planning stages for the next phase of development at Marlowe, which will be a capital spending program of approximately $15-20 million to drill, complete and tie-in up to 4 Muskeg horizontal wells in the second half of 2016.
The Company is pleased to announce that Michael Watzky has joined the Board of Directors, subject to regulatory approval. Mr. Watzky is the co-founder and managing partner of BP Energy Partners (“BP”), and has over 20 years of private equity experience in energy sector investments including oil and gas and energy services. Prior to co-founding BP, Mr. Watzky held senior positions at Matlin Patterson, a private investment firm, and Credit Suisse First Boston.
BP is an energy-focused investment firm based in Dallas, Texas and is an investor in the Company, having acquired convertible debentures in the recent financing. Management and the Board of Directors of Strategic look forward to working with Mr. Watzky to effectively and profitably develop the high-potential Muskeg resource and enhance shareholder value.
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.