Strategic Oil & Gas Ltd. ("Strategic" or the "Company") (TSX VENTURE:SOG) is pleased to report financial and operating results for the year and three months ended December 31, 2016. This year the Company took major strides towards strengthening its balance sheet and increasing the value of its 100% owned core asset at Marlowe in Northern Alberta, and is well positioned to increase production and cash flows through development drilling in 2017.
FOURTH QUARTER SUMMARY
Strategic's main priorities entering 2016 were to strengthen the Company's balance sheet and delineate the Muskeg resource at its 100% owned and operated Marlowe field in Northern Alberta. The issuance of $94.9 million in convertible debentures in February 2016 eliminated the Company's bank debt and provided working capital for asset development. A four well appraisal drilling program completed in the first quarter of 2016 was instrumental in delineating a significant portion of the Muskeg resource, as well as increasing the Company's understanding of the scope of the play within its large land base at Marlowe. With these goals achieved, the Company planned and executed a four well Muskeg development drilling program in the second half of 2016, designed to add production volumes and continue to unlock the value of this sizable oil resource.
Capital expenditures totaled $29.3 million in 2016, with 8 total wells drilled at Marlowe. Successful drilling activities resulted in a 53% increase in proved and probable reserves to 19.6 MMboe at December 2016. Net present value of proved and probable reserves, discounted at 10%, increased to $194.4 million at December 2016 from $107.5 million at December 31, 2015. These results have confirmed once again the significant productivity and potential of the Muskeg play.
With oil prices remaining low throughout 2016, Strategic continued to identify cost efficiencies across its operations in order to remain competitive. Operating and general and administrative costs dropped 28% and 25% respectively from 2015 levels. In addition, the Company used the pay in kind option on its convertible debentures to make the semi-annual interest payments in additional debentures and conserve cash. At December 31, 2016, the Company had $50.8 million in cash, in addition to the $4.7 million in term deposits used as collateral for outstanding letters of credit, providing ample liquidity to continue the Muskeg play development.
The Company's focus remains on developing the reserves and infrastructure in the Marlowe area and continuing to identify efficiencies and reduce drilling costs. In December 2016, Strategic's board of directors approved a capital budget of $30 million for the first half of 2017. In the first quarter of 2017, five Muskeg horizontal wells have been drilled and are awaiting completion operations in the second quarter.
The capital budget also included a 4 km pipeline to tie in 14-35 Muskeg well drilled in the first quarter of 2016. Corporate production peaked at 2,800 boe/d after tie in of the 14-35 in February 2017. Current production is approximately 2,500 boe/d.
With the significant increase in demand for oilfield equipment and services this winter, the Company is facing delays in completing wells and bringing new production onstream. Strategic is endeavoring to mitigate the impact of these delays on its operations, and reiterates its earlier production guidance of exiting the first half of 2017 at 4,000 boe/d.
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.
SOURCE: Strategic Oil & Gas Ltd.
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