Strata-X Chairman's Letter

November 12, 2014

Dear fellow shareholder,
Over the last three years, our team, led by Tim Hoops at our head office in Denver, has put together what I consider to be an exceptional portfolio of low risk – high reward USA oil and gas projects. Most prominent among these are our high margin light sweet crude projects in the Illinois Basin. I am proud to say that Strata-X was a first mover in the Illinois Basin acquiring 100% of approximately 67,000 acres at less than $100 per acre, while the majority of USA petroleum players were pursuing expensive, low margin shale oil projects. I can see this high margin strategy paying off while drilling on shale oil projects decelerates.

At its core, our strategy has been to use our technical and commercial skills to acquire “unloved” areas with proven accumulations of high margin light oil and deploy modern methods to exploit them. As an example, we stimulated and have been carrying out long term testing of the first ‘proof of concept’ horizontal well to demonstrate our ability to commercially extract oil from a large field with unrisked undiscovered 338 million OOIP net to Strata-X. (1) Undiscovered resources are those quantities of oil and gas estimated on a given date to be contained in accumulations yet to be discovered. There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Although this first well relied on what proved to be a sub-optimal completion method, we were delighted to announce just recently that it has reached flow rates in excess of 300 BOPD per day of light sweet crude – a flow rate which far exceeds that required for commercial development. It is still too early, however, to determine the peak production rate or ultimate recovery for this well. There are also no assurances that the well will continue to produce at this rate, or at all, in the future.

We are confident that applying our new completion method to our development  wells, which will have over twice the lateral length and twice the number of stimulation stages, will significantly improve on the results from this first ‘proof of concept’ well.  

Our new shallow Illinois Basin light oil play offers outstanding economic potential. In my 35 years of exploring for oil and gas, I cannot recall seeing as promising an opportunity for low risk, low cost and immediate cash flow – and this is in the heartland of the USA. Many of the wells in the Illinois Basin were drilled before the early ‘70s when oil prices were less than $2 per barrel, so the threshold for an economic well was much lower than it is today. Our data analysis has thus far identified 65 potential low risk drilling locations with bypassed pay zones or untested intervals.

Despite this positive news, our share price is at an all time low. My belief is that investors have included Strata-X in the USA shale oil basket with the result that our share price has over-corrected. The fact is, our margins at a received price of $80 per barrel, including finding and development costs, is $45 to $50 per barrel, whereas shale oil projects have much lower margins.(2)

As testament to our confidence in Strata-X, your board members have recently placed $500,000 of their own funds in non-interest bearing loans to the Company that are convertible to shares at the higher of 18 cents per share and the market price on the date of the AGM, all of which is subject to your approval at that time.

For the loyal shareholders that have stayed with us, thank you for your continued support. I would very much appreciate your taking a few minutes to review the attached updated overview of our Illinois Basin projects. I trust you’ll be persuaded to take this opportunity to increase your shareholdings at a time when our share price is not only at an all time low but when Strata-X is also just entering its high margin production and reserves growth stage in the Illinois Basin.

Sincerely,
Mr. Ron Prefontaine
Chairman
Strata-X Energy. Ltd.

 (1) The information in this Letter that relates to Prospective Resources that was prepared and published by AWT International dated 18 December 2012. The information was published in Strata-X Energy Ltd’s “Prospectus 2013” (available online at www.strata-x.com), as part of the Companies 2013 Australia Securities Exchange Initial Public Offering. It is based on, and fairly represents, information and supporting documentation prepared by, or under the supervision of Doug Barrenger (“JORC Competent Person”) employed by AWT International and is independent of Strata-X Energy Ltd.  At the time of the Prospectus 2013 issuance Doug Barrenger was an employee of AWT International and a member of the Petroleum Exploration Society of Australia (PESA) amongst other professional petroleum organisations. AWT International consents to the inclusion of this information in this document. As of the issuance of this document Strata-X Energy Ltd management is not aware of any material information that would change the results of the AWT International report as published in the Prospectus 2013. Figures shown reflect Strata-X’s economic interest (US Dollars) net of royalty or other burdens and were generated using the deterministic method. The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. The information in this Letter also relates to Prospective Resources that was prepared and published by Chapman Petroleum Engineers Ltd. and dated 21 March 2014 and published on Strata-X Energy Ltd’s website in a News Release dated 24 March 2014 to meet the Company’s ongoing disclosure requirements (available online at www.strata-x.com). It is based on, and fairly represents, information and supporting documentation prepared by, or under the supervision of Charles Moore, employed by Chapman Petroleum Engineers Ltd. and is independent of Strata-X Energy Ltd.  At the time of the Chapman Petroleum Engineers Ltd. report dated 21 March 2014, Charles Moore was an employee of Chapman Petroleum Engineers Ltd. and a registered Professional Engineer in the Province of Alberta, Canada amongst other professional petroleum organisations. Chapman Petroleum Engineers Ltd. and Charles Moore consent to the inclusion of this information in this document. As of the issuance of this document, Strata-X Energy Ltd management is not aware of any material information that would change the results of the Chapman Petroleum Engineers Ltd. report as published in the this presentation. Figures shown reflect Strata-X’s economic interest (US Dollars) net of royalty or other burdens and were generated using the deterministic method.
(2) Prospective Resources Best Estimate Netback figures are from a report prepared by Chapman Petroleum Engineers Ltd (2 October 2014) following analysis of the available technical data including the geological and geophysical interpretation presented to them by Strata-X, information from relevant nearby wells or analogous reservoirs and the proposed program for the project. Netbacks to the Company shown are net of royalties and operating costs from revenues, they were calculated by taking all of the revenues from the oil, less all costs associated with getting the oil to a market. These costs include, importing, transportation, production and refining costs, and royalty fees. There is no certainty that the stated resources will become commercially viable to produce any portion of the resources. The report reviewed only prospective resources as the project is not sufficiently developed to assign contingent resources or additional categories of petroleum reserves to it.