Mr. Tony Berthelet reports
STRATEGIC OIL & GAS LTD. ANNOUNCES SECOND QUARTER 2018 FINANCIAL AND OPERATING RESULTS
Strategic Oil & Gas Ltd. has provided its financial and operating results for the three and six months ended June 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 and on SEDAR.
FINANCIAL AND OPERATIONAL SUMMARY
Three months ended Six months ended
June 30, June 30,
Financial (thousands of dollars, except per share amounts) 2018 2017 2018 2017
Oil and natural gas sales $10,639 $10,312 $20,720 $19,200
Funds from operations (1) 47 2,991 1,601 5,374
Per share basic (1) (2) 0.00 0.06 0.03 0.12
Cash provided by operating activities 972 1,828 1,742 1,879
Per share basic (2) 0.02 0.04 0.04 0.04
Net (loss) (6,399) (7,020) (11,562) (11,460)
Per share basic (2) (0.14) (0.15) (0.25) (0.25)
Net capital expenditures 940 12,784 10,101 30,851
Working capital (deficiency) (comparative figure is as
of Dec. 31, 2017) (1,991) 13,087 (1,991) 13,087
Net debt (comparative figure is as of Dec. 31, 2017) (1) 112,046 95,801 112,046 95,801
Operating
Average daily production
Crude oil (bbl per day) 1,660 1,942 1,680 1,786
Natural gas (mcf per day) 2,865 4,317 2,883 4,096
Barrels of oil equivalent (boe per day) 2,138 2,661 2,161 2,468
Average prices
Oil and NGL, before risk management ($ per bbl) 68.17 51.69 65.17 52.68
Oil and NGL, including risk management ($ per bbl) 67.88 51.69 65.04 52.68
Natural gas ($ per mcf) 1.30 3.00 1.73 2.93
Operating netback ($ per boe) (1)
Oil and natural gas sales 54.68 42.58 52.99 42.97
Royalties (10.20) (4.61) (8.90) (5.03)
Operating expenses (25.11) (19.05) (25.53) (18.83)
Transportation expenses (0.57) (0.94) (0.61) (1.17)
Operating netback (1) 18.80 17.98 17.95 17.94
(1) Funds from operations, net debt and operating netback are non-GAAP (generally accepted accounting
principles) measures; see "non-GAAP measures" in the MD&A.
Performance overview and outlook
In the second quarter, Strategic's new management team was focused on the evaluation of the company's asset base and formulation of a development capital expenditure plan intended to debottleneck the West Marlowe field to optimize production and reserves on existing and future drill locations. In addition, a detailed technical evaluation of the Muskeg zone was developed to obtain first principle technical data associated with the Muskeg reservoir to better quantify the deliverability of the play. In the near term it is management's intention to identify and evaluate financing alternatives for its capital expenditure plan, and the company will provide additional information as it becomes available.
With respect to the two-well Muskeg drilling program completed in the first quarter of 2018, despite the negative impact of pipeline pressures and surface restrictions, the new wells are producing steadily with 98-per-cent run time for the second quarter. Average rates over the first 60 and 90 days of production are as displayed in the table.
IP60 IP90
Well Total (boe/d) % oil Total (boe/d) % oil
1-2 216 84% 182 82%
5-1 173 86% 156 84%
Quarterly summary
Capital expenditures of $900,000 were incurred in the quarter relative to guidance of $1.0-million provided on May 23, 2018. Expenditures included minor facilities projects and completion costs related to the two-well Muskeg development drilling program initiated in the first quarter of 2018.
Revenues increased 3 per cent from the second quarter of 2017 to $10.6-million for the period due an increase in realized oil prices, which were partially offset by lower production. The average WTI oil price for the quarter was $67.88 (U.S.)/bbl. Revenues for the six months ended June 30, 2018, increased by 8 per cent to $20.7-million compared with $19.2-million for the comparative period in 2017 due to an increase in realized oil prices.
Despite higher revenues, funds from operations decreased to nil for the quarter from $3.0-million for the three months ended June 30, 2017, and $1.6-million for the first quarter of 2018. 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 20 per cent from the second quarter of 2017 to 2,138 barrels of oil equivalent per day for the second quarter of 2018 due to a slower pace of drilling activity, as only two Muskeg wells were drilled in 2018 compared with five wells drilled in the first half of 2017. Production volumes in the current period were also affected by elevated pipeline pressures at West Marlowe and a pipeline shutdown at North Marlowe.
Subsequent to the reporting date, a minor non-core asset producing 50 boe/d was sold for nominal consideration, decreasing the company's decommissioning obligations by approximately $2-million.
About Strategic Oil & Gas Ltd.
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, Alta.
We seek Safe Harbor.
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