CALGARY and LONDON, April 30 /CNW/ - Stratic Energy Corporation (TSX Venture: 'SE', AIM 'SE.') ("Stratic" or the "Company") announces its results for 2008 and a summary of reserves, including reserves evaluation. The reserves and reserve evaluation have been independently assessed by Ryder Scott Company L.P. in accordance with the standards specified by Canadian National Instrument 51-101. Full consolidated Financial Statements, Management's Discussion and Analysis (MD&A), and 51-101 filing can be accessed at www.sedar.com and on the Company's website www.straticenergy.com.
Highlights: - West Don development commenced with first oil achieved on April 28, 2009, Stratic's share of peak production expected to be 4,300 bopd. - Two successful appraisal wells drilled on Breagh gas discovery: first well proves up eastern part of field; second well demonstrates increased production potential of horizontal wells. - Development planning work advanced on Crawford, including offtake arrangements, with aim of seeking UK government approval by end 2009. - Development planning work on Longanesi completed and production concession application made in early 2009; now awaiting regulatory approval. - Financing of $42.5 million of convertible notes raised in April 2008 together with $150 million development and pre-development debt facility. - Disposal programme launched to focus business in the North Sea and raise capital from portfolio in response to worldwide credit crisis; bids currently under evaluation. - Agreement reached with lending banks to defer loan repayments of $5.8 million due end June 2009 and agreement in principle also reached, subject to certain conditions, to provide additional debt availability to cover potential expenditure prior to receipt of disposal proceeds. - Proved and probable reserves reduced from 19.1 mmboe to 14.4 mmboe, with 3.6 mmboe of the downgrade as a result of removing Horizon West from booked reserves in the absence of a firm development plan. - Net loss for 2008 of $40.3 million (2007 - $47.3 million) including a $21.2 million write down as a result of the downgrade of Horizon West reserves.
The Company was delighted to announce first production from West Don earlier this week, which by any measure must be viewed as one of the recent success stories in the North Sea. The project was approved by the UK Government in May 2008 and brought on stream in under 12 months at an expected cost to Stratic of some $59 million - without any material delays or cost overruns, and our thanks go to our operator, Petrofac, for this marvellous achievement. We look forward to increasing production levels to full capacity once the remaining development wells are completed and brought on stream by the end of June, and to the increased financial flexibility this production will create for Stratic.
Good progress on Stratic's next North Sea project was also made during 2008. Activity on Crawford in the year consisted of interpreting and integrating the data from the appraisal well drilled in late 2007 into our development planning work, negotiating a tariff deal to use nearby facilities, and preparing the field development plan. This work is nearing completion and we expect to submit the plan for government approval in the summer of 2008 for sanction later this year, subject to all partners concluding satisfactory funding arrangements for the development.
Also in the North Sea, the company participated in two successful wells to appraise the Breagh gas discovery. The first well successfully proved up the eastern part of the field, and the second well demonstrated the increased production capacity from using horizontal wells in the field development. It is clear that Breagh is an outstanding discovery in the North Sea - the largest dry gas discovery in the last 10 years - but it comes at a time when raising development finance by junior oil companies is particularly challenging. Against this background the five company partnership has taken the pragmatic decision to sell 70% of the discovery to a larger, financially robust participant which is able to fund development costs in excess of $1 billion. Stratic is participating in this consortium sale in respect of its entire 10% interest in the discovery. Initial bids are currently under evaluation by Stratic and its partners.
Stratic also participated in an appraisal well on the Cairngorm discovery towards the end of 2008, which unfortunately had to be abandoned before it reached the key reservoir section. The company had high hopes for this well and was disappointed not to test the granite reservoir known to exist in the discovery. We have subsequently acquired our partner's interest in the discovery, and have applied for a two year extension to the licence governing Block 16/3d, which contains a major part of the discovery, and we will be actively pursuing alternative development schemes if the extension is granted.
Elsewhere in the world, Stratic was pleased to announce agreement with Eni in Italy on the development plan for the Longanesi gas discovery and, along with Eni, submitted the production concession applications for the field in February 2009. The regulatory process is expected to take 12-18 months and must be completed before the 9-12 month period of drilling and construction activity in the field can commence. First gas is expected in 2011.
In the Netherlands the company has decided not to proceed with the development of the Horizon West oil field for the time being. We could not get comfortable with the risks of drilling a single long reach well to develop the field in a rising cost environment. The company is now examining alternative development schemes involving two conventional lower risk wells, and we are beginning to see some benefits of lower costs in the future. In the absence of a firm development plan for the field, Horizon West reserves of 3.6 mmbbls booked previously have been removed from our proved and probable reserves statement at year end 2008.
In Turkey, gas production has averaged 330 boepd and has provided useful cash flow for the company. The second phase of development to bring on stream the discoveries made in 2007 is now underway and should see first gas in the second half of 2010.
Given the continuing turmoil in world credit and equity markets, it is clear that traditional capital markets cannot be looked upon to provide funds for development and expansion in the way they have done in the past. Accordingly, the company has decided that it should raise capital internally within the business, at least until markets improve, by selling certain assets to generate proceeds and to remove future development expenditure requirements. This disposal process involves the Breagh gas discovery in the North Sea, Longanesi in Italy and our Turkish assets, and is well underway. This activity, both in terms of amounts raised and the timing of receipts is critical to the business.
Stratic has reached agreement with its banking syndicate to defer repayments of $5.8 million in respect of the Company's Borrowing Base Facility (due June 30, 2009) and $1.2 million in respect of its Undeveloped Asset Backed Facility ("UDAB") (due currently), until the earlier of the time that proceeds are received from the Company's asset disposals, sufficient cash flow is available from the West Don field or December 31, 2009. These arrangements have been credit approved by the banking syndicate and are subject only to final documentation.
The Company has also reached agreement in principle with the bank syndicate, subject to credit approval planned to be sought at the appropriate future time, for certain amendments to the UDAB. These are intended to provide, on the satisfaction of certain conditions, additional debt availability to cover potential expenditure which may be incurred by the Company in the period immediately prior to receiving the expected asset disposal proceeds. Any drawings under the amended UDAB, including existing drawings, will be repaid out of expected disposal proceeds following which it is planned that the UDAB will then be repaid and cancelled. The principal conditions to the UDAB amendment are that the Company has executed acceptable sale and purchase agreements for the disposals contemplated; the provision of acceptable security to the banking syndicate; and that the West Don field has performed satisfactorily in the period since first production.
Our activity in 2009 will be managed carefully to preserve capital in the near term to allow value to be generated from the remaining portfolio in the longer term. Exploration and appraisal activity in 2009 will be limited to its licence commitments, including drilling an exploration well on our Syria acreage in the second half of the year, and spudding an appraisal well on the Bowmore discovery in the North Sea, with drilling activity on other licences held over until 2010 and later.
Kevin Watts, Chief Executive, commented: "The Company has experienced an extremely tough year and market conditions remain difficult, but we have reached a major milestone with first production from the West Don field in the North Sea. The cash flow from this field, together with the arrangements we have reached with our bankers to defer scheduled debt repayments, will improve our short-term financial position. We will now be working to conclude our disposals programme as soon as possible, and to agree amendments to our existing bank facilities to cover any cash flow shortfalls that may arise before disposal receipts are received."
About Stratic:
Stratic Energy Corporation is a Canadian-incorporated international oil and gas business focused on adding value principally through the appraisal, development and production of existing discoveries, supplemented by a low to moderate risk exploration programme. Stratic's principal interests are in the UK and Dutch sectors of the North Sea, Italy, Turkey and Syria. Its shares are listed on the TSX Venture Exchange in Toronto and on AIM, London and its principal operating office is in London, UK.
Forward-looking statements
This news release contains certain forward looking statements, which involve assumptions with respect to future plans, production levels and results, and capital expenditures. The reader is cautioned that all such forward looking statements involve substantial risks and uncertainties and the assumptions used in their preparation may not prove to be correct. Stratic's actual results could differ materially from those expressed in, or implied by, these forward looking statements and accordingly, the forward looking statements are qualified by reference to these cautionary statements. The forward looking statements contained herein are made as at the date of this news release. Stratic undertakes no obligation to update or publicly revise forward looking statements or information unless so required by applicable securities laws.
TSX-V and AIM notifications The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the contents of this release.
Stratic's Chief Operating Officer, Dr Mark Bilsland BSc (geology), PhD (petroleum petrophysics), and member of the SPE, is the qualified person who has reviewed and approved the technical information in this announcement for the purposes of the AIM Rules for Companies (incorporating the Guidance Note for Mining, Oil and Gas Companies).
Reserves Proved Proved & Probable
(net working interest)
oil gas total oil gas total
(mmbbls) (bcf) (mmboe) (mmbbls) (bcf) (mmboe)
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As at December 31, 2007 6.57 24.70 10.69 11.41 46.02 19.08
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Turkey - 1.58 0.26 - 1.63 0.27
United Kingdom 4.97 1.94 5.29 7.48 2.89 7.96
Italy - 21.62 3.60 - 37.22 6.20
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As at December 31, 2008 4.97 25.14 9.16 7.48 41.73 14.44
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The information in the table is extracted from section 4.1 (Reserves Reconciliation) of form NI51-101 F1 filed by Stratic on 30 April 2009, and describes the reserves attributable to Stratic's net working interests by country.