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Strategic Oil and Gas Drilling 10 HZ Wells in 1H 2015

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   |    Wednesday,November 19,2014

Strategic Oil & Gas Ltd. has reported financial and operating results for the three and nine months ended September 30, 2014.

Financial and Operations Summary

• Capital expenditures of $24.9 million for the third quarter of 2014 were directed primarily towards the execution of the Company's successful six well drilling program initiated in June 2014. 
• Average daily production totaled 3,480 boe/d for the three months ended September 30, 2014 compared to 3,510 boe/d for the third quarter of 2013.
• Sales volumes for the current period were 3,234 boe/d compared to production of 3,480 boe/d, as the Company was affected by a temporary shut-down of a third party sales oil pipeline. Strategic immediately implemented measures to mitigate the effect of the pipeline shut-down on crude oil production and sales volumes including the use of rail cars for transportation and shipping volumes to a company-owned storage facility, and as a result the Company did not curtail any production due to this event. Oil inventories increased by 22,600 barrels from the previous quarter's levels. This inventory will be added to sales volumes in the fourth quarter of 2014.
• Funds from operations decreased to $2.8 million ($0.01 per share) in the current quarter from $4.9 million ($0.02 per share) for the third quarter of 2013, due to lower oil sales and an increase in general and administrative expenses. Cash flow provided by operating activities decreased to $0.8 million from $6.4 million for the third quarter of 2013 due to reduced funds from operations and payment of liabilities resulting from the summer drilling program.
• The Company's operating netback decreased to $25.11/boe for three months ended September 30, 2014 as compared to $30.03/boe for the previous year, primarily as a result of lower commodity prices and a lower oil weighting in the sales mix in the current period due to the third party pipeline shutdown.
• Strategic closed the first tranche of a private placement on September 30, 2014, issuing 163.9 million common shares for net proceeds of $65.7 million and reducing quarter-end net debt to $34.6 million. The second tranche of the private placement was closed on October 7, 2014, and the Company issued an additional 17.4 million common shares for net proceeds of $7.2 million.

Operations Update

Strategic's focus during the third quarter was on continuing to develop the Muskeg oil resource through horizontal drilling at Marlowe in northern Alberta. The Company's summer program was highly successful, resulting in six oil wells, all of which were on production by early October 2014. Strategic was able to reduce drilling times and costs relative to the winter capital program, with drilling, completion, equipping and tie-in costs now averaging $3.8 million per well compared to over $5.0 million in the first half of the year.

Strategic has continued to build on the success experienced with the Company's summer drilling program, keeping one rig active at Marlowe and drilling up to five additional wells prior to the end of the year, including one Sulphur Point horizontal well. The Company made enhancements in its well design that have proven successful in further reducing drilling and completion costs while boosting production rates.

Production continued to increase during the course of the fourth quarter and sales volumes averaged 4,100 boe/d for October 2014. Strategic is encouraged by its recent success in the Muskeg program and is maintaining its 2014 exit production guidance at 4,600 boe/d.

First Half 2015 Guidance

Strategic's Board of Directors has approved a capital expenditure budget of $52 million for the first half of 2015, focused on continued development and extension of the Muskeg fairway at Marlowe.

Key highlights of the Company's capital program and guidance for the first half of 2015 are as follows:

• Drill up to 14 wells in the first six months of 2015. Strategic plans to start a second rig in December 2014 and continue drilling with two rigs during the first quarter of 2015. The drilling program consists of 10 horizontal Muskeg wells and up to 4 vertical wells;
• First half average production of 5,000 boe/d;
• First half exit production target of 5,400 boe/d.

Management Comments

Gurpreet Sawhney, Strategic's President and Chief Executive Officer, said: "Our operations team continues to successfully execute our drilling programs. Over the past six months we accelerated development and raised gross proceeds of $73.4 million in a private placement. Despite the current downturn in commodity prices we have maintained a strong liquidity position and will continue to generate positive returns on our drilling programs. We are truly excited about the expansion of drilling operations into the first half of 2015."