Strategic Oil & Gas Ltd
TSX VENTURE : SOG

Strategic Oil & Gas Ltd

September 09, 2010 05:00 ET

Strategic Oil & Gas Ltd. Enters Into a Definitive Agreement to Acquire Additional Maxhamish Interests

CALGARY, ALBERTA--(Marketwire - Sept. 9, 2010) - Strategic Oil & Gas Ltd. (TSX VENTURE:SOG) ("Strategic" or the "Corporation") announces it has entered into a purchase and sale agreement (the "Agreement") with its partner to acquire a major Canadian independent energy corporation's (the "Farmor") remaining 35% working interest in the Maxhamish, northeast British Columbia oil resource play (the "Property"), for a total purchase price of $13.0 million ($5.0 million net to Strategic). Upon closing, the current farmout agreement with respect to the Property (the "Farmout Agreement") will be eliminated providing Strategic with an undivided 38.5% working interest in all the lands in the Maxhamish area.

Agreement Summary

  Pre-Agreement Post Agreement
Strategic Working Interest 25% after payout 38.5%
Undeveloped Land (earned to-date) 8,000 net acres 26,000 net acres
Remaining Commitment Wells 18 wells None
Strategic net Share of PIIP (1) 140 mmbbl 190 mmbbl

(1) Total Petroleum Initially in Place (as per Company's initial internal estimates)

Agreement Benefits

  1. Effectively terminates the Farmout Agreement, with the following benefits:
    1. Immediate, increased working interest ownership of the greater than 85 gross sections of land, without having to drill an additional 18 wells to earn them;
    2. Development plan no longer subject to the commitment plan in the Farmout Agreement, including 18 remaining commitment wells;
    3. Removal of the "promote" on wells or facilities which improves economics substantially. Expected per well costs savings of approximately $385,000 net to Strategic (based on estimated capital costs of $3 million per well);
    4. Removes uncertainty on whether the Farmor was committed to spending capital to develop this property;
  2. Acquisition reflects a purchase price of $560/hectare, much less than current land sales in other light oil resource play areas such as the Cardium. Purchase price does not reflect proved and probable reserves that may be attributed to the lands upon review by an independent reservoir engineer for the 2010 year-end;
  3. Long tenure lands, with few expiries before 2013.

Terms of the Agreement:

  1. Strategic will pay approximately $5 million cash (excluding adjustments) to acquire the additional 13.5% working interest in the lands at Maxhamish. The purchase price will be paid out of currently available working capital.
  2. The acquisition includes 21,500 net acres (>30 sections) of undeveloped land, 7 oil wells (representing 60 boe/d of production net to Strategic), related facilities, an oil pipeline and a road to connect the area to the all year round Liard Highway. In addition, other processing and road use agreements will be signed at closing to facilitate production from the area.
  3. The acquisition includes rights to extensive 2-D seismic coverage over the area.
  4. The definitive agreement is subject to the satisfaction of certain closing conditions which are customary in transactions of this nature. Closing is expected to occur on October 1, 2010, with an effective date of August 1, 2010.

Maxhamish Update

The Maxhamish area is prospective for 40 ° API light sweet oil from the Chinkeh formation found at a depth of 1,600 metres. The Chinkeh reservoir appears to be an extensive sheet sand that has an oil leg down-dip from the existing Maxhamish gas field. 

As previously disclosed in a press release dated July 12, 2010, late in the first quarter, Strategic participated in two horizontal oil wells which were drilled and multi-stage fracture stimulated (a-C18-J-D94-O-11 and a-49-J-D94-O-11). Both wells were production tested, placed on production with pump-jacks, and tied in to a natural gas gathering and processing facility in the second quarter. Combined deliverability from these wells is currently restricted by the owner of the natural gas facility.

Based on the positive results from the two wells, the Corporation, along with its partner, acquired an additional 19 sections at Crown land sales in the Maxhamish area. With the lands to be acquired as part of this transaction and the Crown lands just acquired, over 100 sections of land are now available for drilling. Strategic owns a 38.5% working interest in these lands.

Future Plans

The Corporation is in the early stages of assessing the contingent resources at Maxhamish. The initial results add confidence to the Corporation's initial internal reserve estimates. Results of these wells are currently being assessed and future development plans for the next year are being determined.

"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" said Arn Schoch, President and CEO of the Company.

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 300 boe/d (excluding Maxhamish) with additional production expected to be brought onstream during the third quarter of 2010 from the recently announced drilling program at Taber and Conrad.

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 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 therefrom. The Company 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.

Petroleum initially in place (PIIP)

There is no certainty that any portion of the estimated PIIP will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the estimated PIIP. Additional drilling and analysis is required to develop a resource on the property.

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.

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