CALGARY, Alberta, August 21, 2012 /PRNewswire/ --
Sterling Resources Ltd. (TSX-V:SLG)("Sterling" or the "Company")
an international oil and gas company with exploration and
development assets in the United
Kingdom, Romania,
France and the Netherlands announces interim operating
and financial results for the quarter ended June 30th, 2012. Unless otherwise noted all
figures contained in this report are denominated in Canadian
dollars.
HIGHLIGHTS
- Sale of 13.5 percent interest in Cladhan field sold to TAQA
Bratani Limited ("TAQA") for initial consideration of US$47 million;
- Breagh development drilling program underway with two
previously suspended wells redrilled and a third new well
underway;
- 50 percent interest obtained in the XXV Luceafarul Block
offshore Romania;
- Reduction of the liquidity threshold required under the Breagh
loan agreement from £35 million to £20 million; and
- Breagh development moving forward with total project cost now
estimated at £623 million (100 percent) and production targeted to
commence in December 2012.
The net loss for the quarter ended June
30, 2012 was $7.0 million
($0.03 per share - basic and diluted)
compared to a loss of $13.4 million
($0.07 per share - basic and diluted)
for the three months ended June 30,
2011. During the second quarter of 2011 bad debt expense of
$6.8 million was incurred in relation
to non-payment from a co-venturer on the Grian well. For the second
quarter of 2012 pre-licence and other exploration costs of
$6.1 million were higher than the
$2.3 million incurred during the
second quarter of 2011.
For the six months ended June 30,
2012 a net loss of $14.7
million ($0.07 per share -
basic and diluted) was recorded compared with a loss of
$34.4 million ($0.18 per share - basic and diluted) for the six
months ended June 30, 2011. During
the first two quarters of 2011 the Company incurred significant
exploration and evaluation expenses in the UK North Sea related to
the four well Cladhan drilling program, the drilling of the
non-operated East Breagh appraisal well and the drilling of the
Grian exploration well.
Cash and cash equivalents at June 30,
2012 were $31.2 million
compared to $50.0 million as at
December 31, 2011. In addition, the
Company holds $16.0 million of
non-current restricted cash in accordance with the terms of the
Breagh loan agreement. The Company maintains cash balances
allocated to the currencies in which they are expected to be
utilized, and exchange gains or losses reflected in the income
statement are therefore offset by corresponding reductions or
increases in underlying capital and other expenditures. A small
foreign exchange gain of $77,000 in
the second quarter partially offset a loss of $269,000 incurred during the first quarter,
attributable to the strengthening of the US dollar versus the UK
pound upon the translation of US dollar cash balances. Foreign
exchange losses of $4.9 million
during the first half of 2011 mainly occurred during the first
quarter of 2011, upon conversion of US dollar balances into the
respective functional currencies of the operation holding the
funds.
Net working capital was $20.5
million at June 30, 2012
compared to net working capital of $36.0
million at December 31, 2011.
For the six months ended June 30,
2012, pre-licence and other exploration costs totaled
$8.1 million, of which $4.6 million related to the Company's interests
in various offshore UK licences, $2.1
million related to Romanian licences and $1.3 million to the
Netherlands and other international ventures. Cumulative
capital expenditures related to the Breagh project as at
June 30th have reached
£100.3 million.
"Although the delay in start-up at Breagh is extremely
frustrating, an intensive effort has been made to address remaining
issues related to completion of the onshore facilities, for a
target of first gas by year end," stated Mike Azancot, Sterling's President and CEO.
"Although the Breagh development remains a primary focus, we also
look forward to the drilling of the potentially high-impact Ioana
and Eugenia wells in offshore Romania this fall," added Mr. Azancot.
United Kingdom
At Breagh the estimated development costs for Phase 1 have now
risen to £623 million (100 percent), an increase of approximately
10 percent above the cost estimate of £566 million estimated in the
2011 Annual Report. The increase in costs is principally related to
work required to complete modifications at the existing Teesside
Gas Processing Plant in order to receive and process natural gas
from Breagh, and to complete the onshore section of the export
pipeline. Sterling's share of these additional costs amounts to
approximately £17 million. As of June 30,
2012, Sterling's share of the remaining development cost is
£87 million of which approximately £30 million is to be spent from
July 2012 through to first gas which
is targeted for December 2012.
During mid-May the Breagh development drilling program utilizing
the Ensco 70 rig commenced after a delay in receipt of the rig due
to retention by the previous operator. The two previously suspended
wells, 42/13-3 and 42/13-5Z, have been re-drilled as production
wells A-01 and A-02 respectively, and both wells encountered better
than expected reservoir sections. The A-01 well encountered 74 feet
of net pay (16 feet more than the 42/13-3 well) and the A-02 well
encountered 68 feet of net pay (20 feet more than 42/13-5Z well),
according to the Company's evaluation. In addition, both wells
encountered approximately 25 feet of net pay in reservoir Zone 3
which was not encountered in either of the original wells; subject
to production performance this could lead to increased reserves in
the field. The first new well is now being drilled following which
all three of the first wells will be production tested and up to
seven further wells will then be drilled for the development
program, which may last until 2014. The first three wells are
expected to be on-stream at first production.
Sanction of Phase 2 of the Breagh development will be made later
in 2012. A decision as to the appropriate form of incremental
development will be made following completion of a sub-surface
study being conducted jointly by Sterling and RWE Dea UK,
reflecting the results of reprocessed 3D seismic and better than
expected results from the first two development wells.
In April an agreement was executed with TAQA for the sale of a
13.5 percent interest in the North Cladhan area (Blocks 210/29a and
210/30a) for an initial consideration of US$47 million. This initial consideration will be
received in three installments: US$22.3
million upon completion of assignment, now expected around
the end of this month; US$4.3 million
to be paid upon the achievement of certain milestones likely to be
attained by October 2012; and the
balance as a carry of a portion of Sterling's Cladhan development
expenditures up to US$53.6 million or
a cash payment of up to US$20.4
million, or a combination of the two. A further payment of
up to US$10 million could be received
if, after first production, proven plus probable reserves are
certified to be in the range of 30 to 45 million barrels for 100
percent of the field. A final field development program is expected
to be submitted around the beginning of the fourth quarter of 2012
with approval expected early in 2013. It is planned that TAQA will
assume operatorship later in 2012.
During April, the Company announced that the South Cladhan
exploration well, 210-29c-5 did not encounter hydrocarbons and was
subsequently plugged and abandoned. Pursuant to farm-out agreements
the well was drilled at no cost to Sterling.
The Company has engaged a financial advisor to sell up to all of
its remaining 26.4 percent interest in the Cladhan field in the UK
North Sea. Subject to the receipt of suitable offers, it is the
Company's intention to sign a definitive sale agreement and
complete during the fourth quarter.
The Company announced in May that it had exchanged its 50
percent interest in the UKCS Block 16/3d (Cairngorm) for a 10
percent interest in the
Netherlands F and L Quad licences held by Enquest PLC. The
Cairngorm licence, which was awarded in the UK 26th
Offshore Licensing Round earlier this year, was not regarded as a
core asset, and this transaction will further optimize Sterling's
portfolio in the highly prospective F and L Quad licences in the
Dutch North Sea.
Romania
In late May, Sterling's wholly owned subsidiary in Romania, Midia Resources SRL ("Midia"),
obtained approval from the National Agency for Mineral Resources
("NAMR") for an interest in the 1,000 square kilometre Romanian
Black Sea concession Block 25 (Luceafarul). Midia has obtained a 50
percent interest and is operator. Petro Ventures Europe BV holds
the remaining 50 percent interest. Block 25 was one of a number of
10th Round offshore concessions awarded in June 2010 and subsequently ratified by the
government in October 2011. This
shallow water block, to the west of and adjacent to Sterling's
Midia Block, contains an existing
gas discovery and multiple exploration plays, has existing 2D
seismic coverage and has been assessed by an independent reserves
evaluator.
This procurement of an interest in Block 25 follows the
announcement in mid-March of NAMR`s approval of Sterling`s
procurement of a 40 percent interest in the 1,000 square kilometre
Block 27 (Muridava) concession. This shallow water block is
adjacent to the Pelican Block, in which Sterling currently holds a
65 percent interest, and contains multiple exploration plays, has
existing 2D seismic coverage and contains an existing discovery
well. The Muridava Block is a highly prospective block and shooting
of 3D seismic over it is taking place this summer, with the
intention to drill on the Block as early as 2013. The
procurement of interests in both Blocks 25 and 27 is consistent
with the Company`s strategy in the Romanian Black Sea of continuing
to build upon the existing offshore acreage to complement the
existing interests in the Midia and Pelican Blocks.
The Company was pleased to note the commitment given by the
Romanian government to liberalizing the gas sector in Romania in a letter to the International
Monetary Fund ("IMF") dated June 8,
2012. The letter states that gas prices will be liberalized
starting from the end of this year in order to converge to average
European prices by the end of 2014 for the non-household sector
(industrial), or the end of 2015 if a large gap remains between
European gas prices and import prices, and by the end of 2018 for
the household sector. As the non-household sector has represented
approximately 70 to 75 percent of the total market in recent years,
this schedule is very positive for the Ana and Doina gas
developments, which are expected to come on stream in 2015/2016, as
well as for the valuation of Sterling's extensive exploration
acreage.
On July 10, 2012 the new power and
gas law containing these provisions was passed by the Romanian
government. The legislation enacts the gradual liberalization of
gas prices as contained in the letter to the IMF, as well as
providing for third party access to the Romanian transmission
system. In Romania, the gas
liberalization program allows for a more precise evaluation of our
projects. We intend to reduce our high current equity interest to
one that is more manageable going into 2013, in order to fund the
development program and the exciting exploration campaign upon our
highly prospective offshore blocks.
Sterling's exploration drilling operations will resume in
September 2012 from the
cantilever-type jack-up drilling rig "GSP Jupiter". The program
calls for the drilling of the Ioana gas prospect in 91 metres water
depth to target the Mid Pontian sandstone formation to a total
anticipated depth of 1,600 metres. Following the drilling of Ioana,
the rig will be remobilized north for the drilling of the Eugenia
oil prospect in 55 metres water depth to target three formations in
the Oligocene, Eocene and Late Cretaceous to a total anticipated
depth of 2,300 metres. Success at Ioana could greatly enhance
Sterling's goal to increase the size of the gas hub in the Midia
block that already includes the Ana and Doina discoveries. Eugenia,
on the other hand, represents the first exploration well to be
drilled in the Pelican block.
Financing Activities
The Company has a senior secured credit facility (the "Credit
Facility") for up to £105 million with a lending syndicate of four
institutions to fund Phase 1 of the Breagh gas field. The Credit
Facility comprises a main tranche of £95 million and a cost-overrun
tranche of £10 million, with a term of six and a half years.
Availability under both tranches is re-determined semi-annually and
currently stands at approximately £80 million for the main tranche
with the full amount of the cost-overrun tranche available.
Utilization of the cost-overrun tranche requires a matching use of
funds from the Company. The Credit Facility also requires the
Company to maintain a minimum level of cash over a 12 month period,
as demonstrated by forward-looking cash flow statements prepared at
each quarter end. During the second quarter the Company announced
that it had reached agreement with the lending syndicate to reduce
this minimum cash requirement from £35 million to £20 million
effective April 1, 2012 until project
completion, £10 million of which is held as non-current restricted
cash as it is expected that there will be no access to these funds
for a year. The Company believes it is in compliance with the
undertakings and obligations under the terms of the Credit Facility
as at June 30, 2012.
Since June 30th the
additional costs and production delays at Breagh means that the
Company now expects to fully draw upon both tranches of the Credit
Facility. In order to fund all planned activities prior to the
likely renegotiation of the Breagh Credit facility during the first
quarter of 2013, a small portion of anticipated proceeds from the
additional asset sales either of offshore Romania or of the remaining Cladhan interest
will be required.
The Company has embarked upon a rationalization of assets in
Romania and the United Kingdom. This process includes a
portion of our interests in the Midia, Pelican and Luceafarul
Blocks offshore Romania and all or
part of the Company's remaining 26.4 percent interest in Cladhan.
These planned divestments will raise cash for the Company's
exploration, appraisal and development activities and, in the case
of offshore Romania, a reduction
in working interest from the current level of 65 percent in Midia
and Pelican and 50 percent in Luceafarul will be more appropriate
given the substantial exploration and development program planned
for 2013 and beyond.
Sterling Resources Ltd. is a Canadian-listed international oil
and gas company headquartered in Calgary,
Alberta with assets in the United
Kingdom, Romania,
France and the Netherlands. The shares are listed and
posted for trading on the TSX Venture Exchange under the symbol
"SLG".
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Filer Profile No. 00002072
Forward-Looking Statements
All statements included in this press release that address
activities, events or developments that Sterling expects, believes
or anticipates will or may occur in the future are forward-looking
statements. In addition, statements relating to reserves or
resources are deemed to be forward-looking statements as they
involve the implied assessment, based on certain estimates and
assumptions that the reserves and resources described can be
profitably produced in the future.
These forward-looking statements involve numerous assumptions
made by Sterling based on its experience, perception of historical
trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. In
addition, these statements involve substantial known and unknown
risks and uncertainties that contribute to the possibility that the
predictions, forecasts, projections and other-forward looking
statements will prove inaccurate, certain of which are beyond
Sterling's control, including: the impact of general economic
conditions in the areas in which Sterling operates, civil unrest,
industry conditions, changes in laws and regulations including the
adoption of new environmental laws and regulations and changes in
how they are interpreted and enforced, increased competition, the
lack of availability of qualified personnel or management,
fluctuations in commodity prices, foreign exchange or interest
rates, stock market volatility and obtaining required approvals of
regulatory authorities. In addition there are risks and
uncertainties associated with oil and gas operations. Readers
should also carefully consider the matters discussed under the
heading "Risk Factors" in the Company's Annual Information
Form.
Undue reliance should not be placed on these forward-looking
statements, as there can be no assurance that the plans, intentions
or expectations upon which they are based will occur. Sterling's
actual results, performance or achievements could differ materially
from those expressed in, or implied by, these forward-looking
statements. These statements speak only as of the date of the press
release. Sterling does not intend and does not assume any
obligation to update these forward-looking statements except as
required by law.
Financial outlook information contained in this press release
about prospective results of operations, financial position or cash
flows is based on assumptions about future events, including
economic conditions and proposed courses of action, based on
management's assessment of the relevant information currently
available. Readers are cautioned that such financial outlook
information contained in this press release should not be used for
purposes other than for which it is disclosed herein.
For further information:
Visit http://www.sterling-resources.com or contact:
Mike Azancot, President and Chief
Executive Officer, Phone: +44-20-3008-8488, Mobile:
+44-7740-432883, mike.azancot@sterling-resources.com
David Blewden, Chief Financial Officer, Phone: +44-20-3008-8488,
Mobile: +44-7771-740804, david.blewden@sterling-resources.com
George Kesteven, Manager, Corporate
and Investor Relations, Phone: +1(403)215-9265, Mobile:
+1-(403)-519-3912, george.kesteven@sterling-resources.com
(SLG.)
SOURCE Sterling Resources Ltd.