Strategic Oil & Gas Ltd
TSX VENTURE : SOG

Strategic Oil & Gas Ltd

December 01, 2010 09:44 ET

Strategic Announces Significant Corporate Acquisition

CALGARY, ALBERTA--(Marketwire - Dec. 1, 2010) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Strategic Oil & Gas Ltd. (TSX VENTURE:SOG) ("Strategic" or the "Corporation") announces it has entered into an arms-length agreement to acquire (the "Acquisition") the shares of a private company, ("Privco"), for $10.5 million plus the assumption of $3.5 million in debt. By offering Privco shareholders the choice of cash or Strategic shares, they will have an opportunity to participate in the expected growth of Strategic through the development of Strategic's light oil resource play at Maxhamish, northeast British Columbia, its southern Alberta properties and now Privco's properties. Privco is a company with light oil production and lands situated entirely in northwest Alberta.

Summary of the Acquisition

Through the acquisition, Strategic is acquiring high quality light oil assets, with a substantial land base and facilities, focused entirely in northwest Alberta, for total consideration of approximately $10.5 million in cash and/or Strategic common shares. Privco's primary asset is an owned and operated light oil field, producing from the Keg River zone. Privco is the primary operator in the area with over 110 sections of undeveloped land, oil and natural gas facilities and other infrastructure. This area has been under-exploited to date with minimal seismic or drilling activity.

In August, 2010, Privco experienced a pipeline break that shut in production until the repairs can be made upon winter freeze-up. Current production is approximately 250 boe/d with in excess of 250 bbls/d of light oil (34 degree API) shut-in as a result of the pipeline break. The production is expected to be back on stream in the first quarter of 2011, at which time this Acquisition will add an incremental 500 boe/d of production to Strategic, of which greater than 2/3 is light oil. There is some uncertainty as to the timing of the pipeline repair and reinstatement of production. This Acquisition will take Strategic's production to over 800 boe/d, not including planned additions from the Maxhamish field in northeast British Columbia.

The purchase price will be approximately $10.5 million to acquire 100% of the outstanding shares of Privco. On closing, after change of control and transaction costs, Privco is anticipated to have a net working capital deficit of $3.5 million, primarily represented by secured debentures that have a 5% interest rate and mature in November, 2011. The enterprise value is $14.0 million.



Key statistics of Privco

----------------------------------------------------------------------------
Current production 250 boe/d
----------------------------------------------------------------------------
Additional shut in production 250 + boe/d
----------------------------------------------------------------------------
Expected production in Q1, 2011 500 + boe/d (2/3 light oil)
----------------------------------------------------------------------------
Undeveloped land 110 net sections
----------------------------------------------------------------------------
Tax pools Greater than $100 million

$40 million non-capital losses
----------------------------------------------------------------------------
Facilities Oil Capable of producing 2,000 bbl/d of oil

Natural gas Modern facility that can process 30
MMcf/d of natural gas
----------------------------------------------------------------------------


Acquisition Metric

Based on an estimated enterprise value of $14.0 million, assuming no value for undeveloped land, seismic, tax pools and facilities the transaction metric is as follows:



Production (1) $28,000/flowing barrel

(1) Based on 500 boe/d


Benefits of the Acquisition to Strategic

1. Provides a low cost acquisition of 500 boe/d production at
$28,000/flowing barrel. This acquisition will take Strategic's total
production to more than 800 boe/d.;

2. Ability to turn into all year round access area with minimal capital;

3. Strategic will pay a relatively low price for production. In addition,
the transaction provides Strategic with the following without any
additional cost:

a. more than 110 sections of undeveloped land;

b. more than $100 million of high quality tax pools;

c. A well-maintained natural gas facility with capacity in excess of
30 MMcf/d, and an estimated replacement cost of in excess of $35
million;

4. Additional optimization/workover opportunities for short term
production growth;

5. Long term natural gas potential in a prolific Slave Point/Sulphur Point
producing area;

6. Strategic will own all petroleum and natural gas rights on the lands,
providing for the potential for other high impact hydrocarbon
opportunities upon further technical review.


Future Development Plans

Based on the technical work to date, the current plan for the winter of 2011 would consist of:

i. Ensuring light oil is back on production in Q1, 2011;

ii. Shooting an extensive 3-D program on the property;

iii. Optimizing facilities/production; and

iv. Develop all year round access to the property.

This program will allow Strategic time to assess the geology, geophysics and reservoir engineering to put together a more comprehensive development plan, including a multi-well drilling program. Strategic is considering a preliminary 2011 capital program of approximately $10 million for the Privco properties.

"We are extremely pleased to be able to make this acquisition as it is a low cost addition into an area where we see tremendous upside. This acquisition is accretive to all primary metrics of Strategic, including cash flow per share, net asset value per share and production on a flowing barrel." said Arn Schoch, President and CEO of the Corporation.

Plan of Arrangement

Strategic and Privco have entered into an agreement (the "Arrangement Agreement") pursuant to which Strategic and Privco have agreed that the Acquisition will be conducted by means of a plan of arrangement under the Business Corporations Act (Alberta). Strategic will offer to pay approximately $10.5 million in either cash, common shares of Strategic at a deemed price of $0.90 or a combination thereof in exchange for all of the approximately 34.5 million shares of Privco outstanding. The Privco shares outstanding are comprised of Class A special shares, Class B special shares, Class X incentive shares and common shares.. The offer is $0.30 per share in cash or 0.33 shares of Strategic for each share of Privco. If the Priveco shareholders chose to accept all Strategic shares for the purchase price, approximately 11,667,00 Strategic shares will be issued pursuant to the Arrangement. The Arrangement Agreement provides that completion of the Acquisition is subject to certain conditions, including the approval of the TSX Venture Exchange, the approval of the shareholders of Privco, voting by class, and the approval of the Court of Queen's Bench of Alberta.

Holders of in excess of 51% of the Class A special shares and the common shares, 33% of the Class B special shares, and 100% of the Class X incentive shares have entered into agreements with Strategic pursuant to which they have agreed to vote their shares in favour of the Acquisition. The Board of Directors of Privco, who have received an independent fairness opinion, has unanimously approved the Acquisition and has recommended that the shareholders of Privco vote in favour of the Acquisition.

The Arrangement Agreement, among other things, provides for a non-completion fee to Strategic of up to $500,000 in the event the Acquisition is not completed in certain circumstances. The Acquisition is anticipated to close on December 22, 2010.

An information circular regarding the Arrangement Agreement is expected to be mailed to security holders of Privco on November 30, 2010, with a special meeting scheduled to be held on December 22, 2010.

This Press Release is not an offer to sell securities in the United States. Securities may not be offered or sold in the United States in the absence of registration or an exemption from registration.

About Strategic

Strategic is a junior oil and gas company with producing properties located in Maxhamish, northeast BC and Southern and Central Alberta. Production capability is currently over 350 boe/d.

Strategic's highly regarded subsurface technical team is primarily focused on implementing development plans for the Maxhamish project and its southern Alberta properties, while continuing to review other high impact prospects.

Further information with respect to the Corporation can be found on its website at www.sogoil.com.

Forward-looking information

Certain information set forth in this document, including management's assessment of future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control. Those risks include, without limitation, the effect of general economic conditions, risks associated with oil and gas exploration, development, production, marketing and transportation, loss of markets, industry conditions and competition, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the ability to access qualified personnel and oilfield services, decisions by regulators, the approval of the shareholders of Privco and the Court of Queen's Bench, and the ability to access sufficient capital from internal and external sources. Readers are cautioned not to place undue reliance on the forward-looking statements as the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and actual results, performance or achievements could materially differ from those expressed or implied in such forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by forward looking statements will transpire or occur, or if any of them do so, what benefit Strategic will derive there from. The Corporation does not assume the obligation to revise or update this forward-looking information after the date of this release or to revise such information to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

Boe presentation

Barrel ("bbl") of oil equivalent ("boe") amounts may be misleading particularly if used in isolation. All boe conversions in this report are calculated using a conversion of six thousand cubic feet of natural gas to one equivalent barrel of oil (6 mcf=1 bbl) and is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information