| General Discussion On Stratic Energy

31st Jan '10 by Murakami

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Stratic is an international oil and gas company operating principally in the North Sea and Italy. The business model is to identify and acquire oil and gas discoveries that have not previously been fully exploited by the industry.

We create value by solving the technical and commercial problems that prevented development in the past, often using new and innovative technology, thus enabling us to advance these discoveries into development and production. We supplement this approach with complementary exploration activity to provide longer term growth.

Stratic's key assets are located in the following areas:

North Sea: the West Don, Crawford, Cairngorm, and Bowmore discoveries in the UK sector and the Horizon West discovery in the Dutch sector; and
Italy: the Longanesi gas discovery, onshore Po Valley.

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AbAngus

1st Feb '10

Just a brief update:

Production:

SE.'s production is now mostly from its 17.2% interest in West Don (1,163 bopd net for Q3 09), with a contribution from Turkish gas (1.6mmcuft/d sold at ~ $8/mcuft).

Following the problems with production from WD, Ryder Scott were commisioned to produce a report. This reduced gross reserves by ~10% to 18.4mmbbls (3.17mmbls net to SE. - see the Q3 report at : http://www.investegate.co.uk/Article.aspx?id=200911300700112464D ). Production is anticipated to respond to gas lift + water injection, peaking in 2011 @11,000 bopd gross ( ~1,900 bopd net). In their RNS dated 19 Nov 09 (http://www.investegate.co.uk/Article.aspx?id=200911190700107389C) SE. commented: 'At current Brent oil prices of around $75 a barrel, the production levels indicated in Ryder Scott's recent report would yield pre-tax operating cash flows totaling over $80 million net to the Company in 2010 and 2011.'

Exploration, Appraisal and Pre-Development:

Staying first at West Don; the partnership is likely to drill a further well in the South of the field in the Summer (cost ~$11M net to SE.) This may lead to an increase in reserves/production.

In addition, SE. has a 19% interest in Crawford (potentially 4.1mmbbls net to SE.). Sanction of the FDP has deferred until later this year, pending further pre-development work.

SE. also has a 15% interest in Bowmore (a 1990 HPHT gas/condensate discovery). An appraisal well was drilled last June. The results were kept 'tight hole' because of commercial implictions for surrounding acreage. Nonetheless, the partnership are expecting to drill a further well this year.

A recent well in Syria was a a duster.

Asset Sales:

As a result of the credit crunch, SE. sold first its share of Breagh and then Longanesi. There is an impression that further sales of non-core assets might happen, although the balance sheet looks considerably more healthy than before.

Debt:

Net debt at 31 Dec 09 was about $46M (see http://www.investegate.co.uk/Article.aspx?id=201001250700070284G ). Of this, $25M was repayable at that time - this has been deferred until the proceeds of the sale of Longanesi come through at the end of Q1 ($50.9M). In addition to the debt deferral, a further line of credit of $10M was arranged - also to be paid back out of the sale proceeds.

At the end of Q1, therefore, the net debt should be about $46M+$10M-$50.9M= ~$5M. There are also $62.4M of convertible loan notes ($15M due repayment in 2011, the remainder in 2013).

Summary:

This could be a recovery play? The Mkt Cap is about £21M, the debt now looks quite manageable - and West Don should provide satisfactory cash flows.... On the downside, there doesn't look to be much exciting news on the horizon.

(Disclosure: I have a small position, hoping for a bounce from the recent lows.)

General Discussion on Stratic Energy

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Murakami

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