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“We own and control our infrastructure, and we have a board of directors and key investors who are supportive of helping us extract value from these assets,” he told Thursday’s annual general meeting — his first AGM since joining themanagement team and board of directors ( DOB, April 23, 2018).

According to this week’s Q1 financial and operational results, production potential of the company’s latest Muskeg wells emboldens management, which feels new drilling and completion techniques were effective in correcting the well placement and connectivity issues experienced with the 2017 drilling program.

“We must understand what [our] regulatory commitment is to maintain our regulatory obligations in order to keep production going,” Berthelet said in regards to his company’s first priority for the next two months. “The second thing is we must understand what worked and what didn’t work on that last two-well program.”

During Q1, Strategic focused on executing a two-well, west-Marlow Muskeg development drilling program. Crews drilled both the 1-2 and 5-1 wells with a 1,900-metre lateral section completed with 28 and 30 stages, respectively. Initially, crews opened only a fraction of total stages on each well to assess contributions from the new frac system.

Initial production rates through testers averaged 473 boe/d (82 per cent oil) for the 1-2 well on an 11-day test and 388 boe/d (83 per cent oil) for the 5-1 well for the final four days of a 19 day test period. Berthelet noted that while he is encouraged by the results of the last two-well program, management must look to those wells to determine the next move in terms of capital investment.

“The third thing we need to do is understand our infrastructure,” he said, adding that debottlenecking is important and Strategic must discern its drawdown on all existing wells in the short-term. Finally, he told this week’s AGM, the company must put together a capital investment program.

“Our goal is within two months to be able to come back to our investors and board and be able to talk about what a raise looks like, so that we can look at that next tranche of activity. But those first three priorities will be really critical in helping us understand how we structure what that capital raise looks like.”

Strategic had estimated $9 million in capital spending for the first half of this year. However, first quarter capital expenditures totalled $9.2 million, and the company expects an additional $1 million in spending in the second quarter to complete the program. The increase is related to minor facilities projects and additional completion costs incurred while monitoring the effectiveness of the new frac design.

For now, Strategy is reducing surface restrictions to enhance productivity of the west Marlowe area. The company will incorporate information gained from the two-well winter program into the next development plan, which is in the planning stage. During the three months ended March 31, 2018, Strategic recorded revenue of $10.08 million, which is 13 per cent more than in Q1 2017, due to higher oil production and an increase in realized oil prices.

In Q1 2018, production totalled 2,183 boe/d, which is four per cent less than in Q1 2017. However, average oil and natural gas liquid production increased year-over-year by four per cent to 1,700 bbls/d in the first three months of this year, due to new oil production from Muskeg wells drilled this year and last year.

Meanwhile, natural gas production in Q1 2018 was about 2.9 mmcf/d, which is 25 per cent less than during the prior year’s first quarter, due to Muskeg wells drilled last year and in Q1 of this year having lower gas-oil production ratios than most of the earlier west Marlowe wells drilled. Also, a colder winter meant more fuel gas usage in Q1 2018.

During this week’s AGM, management highlighted that technical revisions to probable reserves accounted for an 18-per-cent drop in proved and probable reserves last year for Strategic, as certain adjustments made to drilling and production techniques in early 2017, which limited the productivity of the new wells relative to earlier Muskeg wells drilled, negatively affected reserves assigned to the Muskeg wells ( DOB, Feb. 27, 2018).

“We consciously changed our drilling pattern, and we consciously managed our completions, and we thought we were making improvements, but in fact we did a detriment and we did not collect all the pay, and that hurt us,” said Cody Smith, chief operating officer. While Strategic underperformed last year, he added, the company is now working to resolve those issues and contact all its pay. “We believe we have the solution in hand.”