Strategic Oil & Gas Ltd. Announces 2010 Year End Results and $5.3 Million, or $0.06 Per Share, Net Income for the Year

CALGARY, ALBERTA--(Marketwire - March 31, 2011) - Strategic Oil & Gas Ltd. ("Strategic" or the "Company") (TSX VENTURE:SOG) is pleased to announce its financial results for the year ended December 31, 2010.

Financial and Operations Overview

For the years ended December 31, 2010 and 2009
(thousands of dollars except per share amounts and shares outstanding)
			2010				2009
Cash Flow from operations *		$	(1,771	)		$	(1,685	)
Per share – basic		$	(0.02	)		$	(0.04	)
Net Income (loss)		$	5,315			$	(3,889	)
Per share – basic		$	0.06			$	(0.10	)
Average production (boe/d)			303 boe/d				196 boe/d
Capital expenditures
Land and seismic		$	4,845			$	163
Drill and complete			5,886				1,891
Property acquisitions			1,665				3,962
Equipment, facilities and other			1,351				399
		$	13,747			$	6,415
Corporate acquisition		$	14,456				---
Common shares o/s at year-end (000's)			138,555				68,693
* before changes in non-cash capital

Highlights

• Net income of $5.3 million ($0.06 per share) for the year ended December 31, 2010, versus a loss of $3.9 million ($0.10 per share) for the year ended December 31, 2009.

• Drilled, completed and tied in two horizontal multi-stage frac wells at Maxhamish. 

• Bought out the farmout on the Maxhamish property from Encana Corporation with its partner (Legacy Oil + Gas Inc.) for $13.0 million ($5.0 million net to Strategic), resulting in a current undeveloped land position of over 100 sections of which Strategic has a 38.5% working interest.

• Acquired Steen River Oil & Gas Ltd., a company with over 100 sections of undeveloped land, production capability of 600 boe/d (2/3 light oil), facilities and tax pools of $120 million for consideration of $14.0 million.

• Commenced 2011 development program at Steen River and Maxhamish.

• Raised $27.9 million in common and flow through shares in the fourth quarter of 2010.

• Raised $21.5 million from the exercise of warrants in the fourth quarter of 2010.

Overview of Performance

Summary

In 2009, a decision was made to grow Strategic, which involved acquiring a strong technical team through the ZinMac Inc. acquisition, and following this up by the acquisition of a farmout of the Maxhamish property in northeast British Columbia. The Corporation subsequently acquired the Taber and Conrad properties in Southern Alberta. After raising $14.5 million in late 2009, Strategic commenced its 2010 development program at Maxhamish.

Late in the first quarter of 2010, Strategic participated in two horizontal oil wells at Maxhamish which were drilled and multi-stage fracture stimulated (a-C18-J-D94-O-11 and a-49-J-D94-O-11). Both wells were placed on production and tied in to a natural gas gathering and processing facility in the second quarter. Combined deliverability from these wells was restricted by the owner of the natural gas facility. Strategic management estimates that based on an internal evaluation of the Maxhamish wells, the productivity potential is 150 to 200 barrels per day.

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 in the second quarter. This was followed up in October, 2010 by entering into a purchase and sale agreement with its partner to acquire from Encana Corporation the remaining 35% working interest in Maxhamish, for a total purchase price of $13.0 million ($5.0 million net to Strategic). As a result of these transactions, the current farmout agreement with respect to the Maxhamish area has been eliminated providing Strategic with an undivided 38.5% working interest in over 100 sections of undeveloped land in the area.

In early 2011, Strategic commissioned GLJ Petroleum Consultants Ltd. ("GLJ") to conduct an independent resource evaluation of the Corporation's Maxhamish area effective December 31, 2010. This study has assigned discovered petroleum initially-in-place ("DPIIP") to 13,874 gross acres (22 sections gross lease) of land for a best estimate of 123 MMbbl of oil (48 MMbbl net to Strategic). This represents 6 MMbbl of oil per section gross lease. This assignment is consistent with Strategic's internal estimate for DPIIP resources for the study area. The DPIIP study is restricted to a 3 mile extension from the existing wells where proven and probable assignment of reserves have been recognized and does not extend over the entire Maxhamish land base. The 13,874 acres are 20% of Strategic's Maxhamish land base. 

This independent study confirms the Corporation's internal DPIIP estimate of over 600 MMbbl of oil on Strategic's lands. In addition, Strategic management's internal estimate has projected recovery factors of between 10% to 15% on primary recovery. At 4 wells per section this would yield recoverable volumes of between 150 and 225 Mbbl per well. This sets up an exciting 2011 and beyond, as the Maxhamish field is further developed for all year access to maximize the upside potential.

Strategic continued to review and assess additional opportunities to add to its light oil prospects inventory. On December 22, 2010, Strategic closed an arms-length acquisition of all of the issued and outstanding shares of Steen River Oil & Gas Ltd. ("Steen River"), a private oil and gas exploration and production company. 

Steen River's primary asset is an owned and operated light oil field producing from the Keg River zone. Steen River 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. 

At the time of acquisition, production was approximately 250 boe/d with an additional 250 bbls/d of light oil (34 degree API) shut-in as a result of a pipeline break. In late January, 2011 the pipeline was repaired and an additional 400 boe/d of production was brought back on-stream. Total production from this field is currently approximately 650 boe/d, of which greater than 2/3 is light oil. This is prior to the first quarter 2011 workover and drilling programs.

In October, 2010, Strategic closed a financing for common and flow-through common shares for gross proceeds of $22.2 million. In December, 2010, Strategic closed a second financing for flow-through common shares for gross proceeds of $5.7 million. In addition, 36.0 million warrants were exercised for proceeds of $21.5 million in the fourth quarter.

At year-end, the Corporation was in strong financial shape, with working capital of approximately $29 million, a $5 million unused line of credit and two large light oil resource opportunities. Strategic plans an aggressive capital program on its Maxhamish and Steen River properties in 2011.

2010 results

The year ended December 31, 2010 showed an increase in volumes over the comparable period of 2009 due to the acquisition of the Taber and Conrad properties of Southern Alberta in November 2009, and the payout and subsequent acquisition of Maxhamish in the third and fourth quarters of 2010. Average daily sales volumes increased by 54% to 303 boe/d in 2010 versus 196 boe/d in 2009. Revenues increased by 118% to $6,124,134 for 2010 versus $2,808,080 in 2009. The average commodity prices rose by 41% for 2010 over 2009 contributing to the increase in revenue. The Corporation received an average price of $55.34 per boe in 2010 versus $39.17 in 2009.

For the fourth quarter ended December 31, 2010 average daily production was 317 boe/d versus 314 boe/d for the third quarter of 2010. Steen River was acquired on December 22, 2010, and a substantial portion of the production was shut-in due to a pipeline break, so little production accrued to Strategic in the 2010 financial statements. Subsequent to the year end, the pipeline repair was completed, adding over 650 boe/d of production to the Corporation in the first quarter of 2011. Revenues for the fourth quarter of 2010 were $1,639,920 versus $1,504,357 in the third quarter. The Corporation received an average price of $56.21 per boe in the fourth quarter of 2010 versus $52.08 per boe in the third quarter. 

For the year ended December 31, 2010, the Corporation had a net income of $5,314,568 or $0.06 per share (basic and diluted) as compared to a net loss of $3,889,318 or $0.10 per share for 2009. The income in 2010 arises from a non-recurring item, the gain on acquisition of Steen River of $10,547,125 resulting from the fair value of the assets acquired being greater than the consideration offered at the time of acquisition. Funds used in operations for 2010 were $1,771,245 as compared to $1,685,162 in 2009.

Outlook for 2011

Strategic finished 2010 with approximately $29 million in working capital, with two light oil properties (Maxhamish and Steen River) with over 100 gross sections of land in each. 

Strategic exited 2010 with production of approximately 500 boe/d. After repair of the pipeline at Steen River in January, 2011, an additional 400 boe/d was added, of which 2/3 was light sweet crude oil. Production in early 2011 is in excess of 900 boe/d. 

Maxhamish

At Maxhamish, the 2011 development program is proceeding. 

The current plan for the first half of the year includes:

1. Building a year-round access road in the first quarter of 2011 to improve access to the area;
2. Licensing and construction of drilling pads that can accommodate up to 8 wells per pad;
3. Drilling up to 4 wells by the third quarter of 2011, with completions to follow;
4. Building necessary infrastructure where necessary, including battery, pipelines, etc.;
5. Assessment of future drilling program.

Steen River, northwest Alberta

At Steen River, where the Corporation has a 100% working interest and operates the field, Strategic is moving forward aggressively to develop the property. This includes shooting a $3.5 million 3-D and 2-D seismic program, workovers on up to 4 wells, building a year round road into certain core areas of the property and drilling two Keg River oil wells. This program is currently in progress and will be finished early in the second quarter. Upon completion of the seismic program, the regional geological study currently being performed, and assessment of current workovers and drills, Strategic's technical team will be assessing the results and selecting additional Keg River locations for late summer or fall drilling. 

Summary

Strategic is in a unique position for a junior/emerging oil and gas company:

1. It is financed with a working capital balance of $29 million at year-end, 2010; 
2. Independent confirmation of light oil resource at Maxhamish, with over 100 sections of land;
3. 100 sections of undeveloped land at Steen River, an area with proven light oil potential;
4. Politically and fiscally stable environment.

About Strategic

Strategic is a well capitalized junior oil and gas company committed to growth by exploiting its light oil assets in Maxhamish, northeast BC and Steen River in northwest Alberta. Strategic's highly regarded subsurface technical team is primarily focused on implementing development plans for its light oil properties, while continuing to review other high impact light oil resource plays. Strategic's common shares trade on the TSX Venture Exchange under the symbol SOG.

Complete financial statements, with accompanying management discussion and analysis are available for review at www.sedar.com. 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 there from. 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.

DISCOVERED PETROLEUM INITIALLY IN PLACE (DPIIP): DPIIP is equivalent to discovered resources and is defined in the Canadian Oil and Gas Evaluation Handbook ("COGEH") as that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially-in-place includes production, reserves and contingent resources; the remainder is unrecoverable. "Contingent Resources" are defined in COGEH as those quantities of petroleum estimated to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be economically recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. The Contingent Resources estimates and the DPIIP estimates are estimates only and the actual results may be greater or less than the estimates provided herein. There is no certainty that it will be commercially viable to produce any portion of the resources except to the extent identified as proved or probable reserves. "Best estimate" is defined in COGEH with respect to entity-level estimates, as the value derived by an evaluator using deterministic methods that best represent the expected outcome with no optimism or conservatism. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.