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Press release from CNW Group

Sterling Resources Announces Second Quarter Operating and Financial Results

Tuesday, August 23, 2011

Sterling Resources Announces Second Quarter Operating and Financial Results17:00 EDT Tuesday, August 23, 2011CALGARY, Aug. 23, 2011 /CNW/ - 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 30, 2011.  Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.The net loss for the quarter ended June 30, 2011 was $13.6 million ($0.07 per share - basic and diluted) compared to a loss of $6.1 million ($0.05 per share - basic and diluted) for the three months ended June 30, 2010. Included in this loss is $6.8 million representing the full write-off of a receivable due from a partner in the unsuccessful Grian well on Block 48/28b in the Southern North Sea.  Collection efforts are continuing.For the six months ended June 30, 2011 a net loss of $36.0 million ($0.19 per share - basic and diluted) was recorded compared with a loss of $7.6 million ($0.06 per share - basic and diluted) for the six months ended June 30, 2010.Cash and cash equivalents at June 30, 2011 were $39.8 million compared to $142.6 million at December 31, 2010. Additional restricted cash of $8.7 million at June 30, 2011 represents the Company's share of cash in escrow for expenditures related to the ongoing drilling programs, primarily at Cladhan.Net working capital was $3.5 million at June 30, 2011 compared to net working capital of $138.4 million at December 31, 2010.  Net working capital was lower mainly due to the increase in operational activity at Breagh, Cladhan and Grian in the UK North Sea.  Capital expenditures on all properties, during the six months ended June 30, 2011 totaled $106.3 million compared to $6.6 million during the first six months of 2010. Major capital items during the quarter included $27.0 million of costs attributable to the Cladhan drilling campaign, $78.7 million related to Breagh development costs and the drilling of the East Breagh 42/13a-6 appraisal well.United KingdomThe Breagh field is located in UKCS Blocks 42/12a and 42/13a of the Southern North Sea in 62 metres water depth, approximately 100 kilometres east of Teesside. The field is being developed in two phases. Phase 1 entails gas to be exported via the 20 inch pipeline from the Breagh Alpha platform to Coatham Sands, Redcar on the UK mainland, and a 10 kilometre onshore pipeline for processing at the Teesside Gas Processing Plant (TGPP) at Seal Sands. The TGPP site is owned by Teesside Gas & Liquids Processing, and after processing at the TGPP, the gas will enter the UK National Transmission System. Fabrication of both the jacket and topsides for the Breagh Alpha platform is progressing towards tow-out and installation, which is currently scheduled for early September 2011. Pipelay operations are also progressing well with both the 20-inch production pipeline and the three-inch methanol line having been laid. The current capital expenditure budget for Phase 1, assuming Phase 2 follows on, remains at around £420 million (for 100 percent of the field) although there remains some scope for minor variances in the final level of expenditures. The FDP capital expenditure budget for Phase 1 without a second platform is approximately £485 million which includes £65 million for drilling three additional long reach wells out to the east of the field from the Breagh Alpha platform. First production from Phase 1 is expected in mid 2012 and peak proved plus probable ("2P") production is expected in 2015 at 167 million cubic feet of sales gas per day (MMcf/d) (100 percent) as estimated by the Company's independent reserves evaluator RPS Energy.Phase 2 of the Breagh development is currently under consideration and is likely to comprise a second platform with further wells on the eastern side of the field, drilled from a Breagh Bravo platform tied back to Alpha. Assuming this goes ahead, incremental production from Phase 2 could commence in 2013 with peak full field 2P sales gas production in 2016 at 186 MMcf/d (100 percent), as estimated by RPS Energy."The recent signing of the Breagh loan facility and approval of the field development program (FDP) by the UK regulator are major milestones in Sterling's evolution from an exploration company to a full-cycle exploration, development and production company," stated Mike Azancot, Sterling's CEO. "With initial gas production less than a year away, Breagh will be a cornerstone to our future growth plans. Together with the recently announced reserves increase, we are pleased with how the project is progressing," he added. Sterling has been at the forefront of the Breagh project as operator of the licenses containing the field awarded in 2004 and 2005, culminating in a very successful appraisal drilling campaign in 2007 and 2008.  The Breagh field is one of the largest natural gas discoveries to be developed in the UK Southern North Sea in recent years.  The gas field is a conventional Carboniferous reservoir and will be the first large scale production for Sterling.The completion of the four-well appraisal drilling campaign during the second quarter at Cladhan has successfully increased the vertical height of the oil column in the northern core area from 798 feet to a minimum of 1,228 feet as an oil water contact was not seen and has improved definition of the northern core area.  This enables us to proceed with development planning for Cladhan which, at this stage, is primarily focused on a subsea tie-back to nearby third-party facilities. From this northern hub, other areas could be developed such as the South Cladhan area and the prospective areas to the east.  Definition of other adjacent resources will be conducted during our next drilling campaign.  Pipeline route and environmental survey work has commenced at Cladhan with a target for first oil in 2014. The recent well results are being integrated with an ongoing seismic re-processing exercise to provide new resource estimates to be released late September 2011.RomaniaDuring the second quarter Sterling initiated three separate, but related actions to defend its rights, with the intent of removing the roadblocks impeding progress in Romania. In late April the Company declared Force Majeure on its Midia and Pelican Blocks in the Black Sea after the Company has been unable to undertake petroleum operations for reasons outside of its control.  In early May a Notice of Default was filed with the National Agency of Mineral Resources ("NAMR") as a result of NAMR's failure to grant license assignments to Sterling's farm in partners for a cumulative 35 percent license holding on its Midia and Pelican Blocks in the Black Sea.  Finally, in late June Sterling filed a Notice of Dispute with the State of Romania under the Treaty for the Promotion and Reciprocal Protection of Investments between Romania and Canada. The Notice of Dispute was filed as a result of deliberate and discriminatory actions taken against the Company's investments on its offshore blocks. The Notice of Dispute allows for a six-month period of negotiations in which to resolve the issues amicably. If Sterling is unable to obtain satisfactory resolution on all the issues within this period, the Company can then submit the matter to arbitration, if it so desires. Under the arbitration process, Sterling would claim monetary damages that reflect the entire and significant ultimate value of its offshore assets.Despite this unfortunate situation, we continue our dialogue with NAMR and other Romanian authorities to find a resolution that will allow the Company to fulfill its obligations, preserve its rights and ultimately achieve success for the Company and the people of Romania. Assuming a satisfactory resolution can be achieved through this dialogue, we are hopeful that we can advance our plans to undertake further exploration on these very prospective blocks and bring Ana and Doina to production within three years. This will bring significant benefits to Romania in terms of greater energy self-sufficiency, the possible award of construction and oil service contracts to local companies, and encouragement to a wide range of companies to explore offshore Romania.NetherlandsOffshore the Netherlands, in the fourth quarter of this year the Company intends to drill and potentially to test a well on an existing discovery in block F17. Pre-planning has been conducted and subsequent to the end of the quarter, a suitable rig has been selected to spud the well in November 2011.FranceIn the Paris Basin of France, Sterling as operator is still awaiting final confirmation of the award of 9.5 blocks. The French government has recently passed legislation governing the drilling technologies to be employed to unlock the oil potential of the Lias shale in the region. This has delayed the final award of the blocks but there have been recent developments that should enable a resolution during the fourth quarter. No drilling is planned by Sterling until 2012 in the Paris Basin, although a multi-well drilling program is planned for later in 2011 on an adjacent third-party license and its outcome will assist us in developing our own drilling plans going forward.Subsequent EventsOn July 5, 2011, Sterling announced increased Company interest reserves numbers for the Breagh field as a result of the successful drilling of the 42/13a-6 well earlier in 2011. Proved reserves (1P) have risen from 23.6 million barrels of oil equivalent ("MMboe") at year end 2010, as evaluated by RPS Energy, to 28.2 MMboe, an increase of approximately 19 percent. Similarly, an increase in the 2P reserves has been realized rising from 31.6 MMboe as at December 31, 2010 to 35.3 MMboe as at May 31, 2011, an increase of 12 percent. Finally, proved plus probable plus possible (3P) reserves have risen from 39.0 MMboe as at December 31, 2010 to 44.1 MMboe as at May 31, 2011, an increase of 13 percent.On July 19, 2011, the Company announced that it and its wholly-owned subsidiary Sterling UK had entered into a £105 million senior secured loan facility agreement with a syndicate of lenders comprising Société Générale, BNP Paribas and Commonwealth Bank of Australia for the development of the Breagh gas field.  The loan amount to be provided under the facility has a main tranche of £95 million and a cost overrun facility up to £10 million.  The loan facility has a maximum life of 6.5 years and is repayable from the revenues from the Breagh gas field.  Closing and first drawdown is expected in the very near future.On July 25, 2011, the Company announced that the FDP for the Breagh gas field had received the approval of the UK Department of Energy and Climate Change.On July 26, 2011, the Company entered into a bought deal financing agreement with a syndicate of underwriters to issue 32,143,000 common shares at a price of $1.40 per share. The offering of 32,143,000 common shares closed on August 16, 2011. Total gross proceeds from the issue were $45,000,200 and total net proceeds after deducting the underwriters' fee and other expenses were $42,600,000. Net proceeds will be used towards: (1) meeting the liquidity threshold set under the recently signed £105 million senior secured loan facility to finance development of Phase 1 of the Breagh gas field along with any potential cost overruns; (2) an accelerated incremental appraisal/development well on the Crosgan discovery in the UK North Sea; and (3) a potential production test of the appraisal well planned on block F17 offshore the Netherlands later this year.In August 2011, the Company hedged a portion of its Breagh P90 gas production for winter 2012 through to summer 2014 as required under the Facility. This was done by buying put options at a price above the lending banks' price assumptions but below the forward curve.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. 00002072Forward-Looking StatementsAll 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 purpose other than for which it is disclosed herein.  For further information: visit www.sterling-resources.com or contact: Mike Azancot, President and Chief Executive Officer, Phone: 44-1330-826764, Mobile: 44-7740-432883, mike.azancot@sterling-resources.com David Blewden, Chief Financial Officer, Phone: 44-1330-826766, Mobile: 44-7771-740804, david.blewden@sterling-resources.com George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Fax: (403) 215-9279, george.kesteven@sterling-resources.com