Press release from CNW Group
Sterling Resources announces first quarter operating and financial results
Tuesday, May 22, 2012
CALGARY, May 22, 2012 /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 March 31, 2012. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.
For the three months ended March 31, 2012 the Company recorded a net loss of $7.6 million ($0.03 per share) compared with a net loss of $21.5 million ($0.11 per share) for the three months ended March 31, 2011. Three major factors contributed to this reduced loss, the most notably being that there were no dry hole costs during the first quarter of 2012, whereas during the first quarter of 2011 dry hole costs of $9.7 million related to the unsuccessful Grian exploration well (Block 48/28b) in the UK North Sea were incurred. Secondly, pre-licence and other exploration costs were $1.9 million during the first quarter of 2012 compared to nearly $5.0 million during the first quarter of 2011. The Company's major focus during the first quarter of 2012 was upon the drilling of the appraisal well F17-09 in the Dutch North Sea and the exploration well at South Cladhan in the UK Northern North Sea. Finally, foreign exchange losses for the quarter ended March 31, 2012 were minimal at $0.3 million, while on a comparative basis, foreign exchange losses totaled $4.5 million during the first quarter 2011 and arose mainly on the translation of US dollar cash balances into the functional currencies used by the respective business units.
Cash and cash equivalents at March 31, 2012 were $36.6 million compared to $50.0 million as at December 31, 2011. Net working capital was $31.3 million at March 31, 2012 compared to net working capital of $36.0 million at December 31, 2011. As at March 31, 2012 the Company had access to sufficient cash to settle its trade and other payables and meet its immediate joint venture commitments and licence obligations through a combination of existing available cash, access to undrawn amounts available under the Breagh credit facility and from the commencement of gas sales at Breagh, with these production revenues available to fund costs related to Breagh. In light of the probable Breagh cost overrun and production delay announced on May 21, 2012 additional funding may be required to fund Breagh development costs and to satisfy undertakings under the Breagh credit facility. Additional funding would also be required for Phase 2 of the Breagh development, for the development of Cladhan and Ana/Doina subject to relevant approvals and for any material new exploration and approval activity not currently planned. To raise any such additional funds, the Company would seek to renegotiate loan terms, to defer non-committed activities, or to raise additional funds by further asset sales or other financing transactions.
"We look forward to first gas production from Breagh later this year, which will be a major milestone for Sterling and the culmination of eight years of work," stated Mike Azancot, President and CEO of Sterling. "The transaction announced subsequent to the quarter end regarding the sale of a 13.5 percent interest in the North Cladhan field, should provide Sterling with additional funds to be used towards its high priority drilling and seismic initiatives during the remainder of 2012, including the drilling of two offshore wells in the Romanian Black Sea. We look forward to resuming an active drilling program and the transformation of Sterling from a pure exploration company to one that also is a producer," added Mr. Azancot.
The Company has recently been informed of the potential for a cost and schedule overrun on the Breagh development project. This relates to modification works being carried out at the existing Teesside Gas Processing Plant (TGPP), so that the Breagh production can be received and processed at TGPP. The potential schedule overrun may result in Breagh start-up being delayed from late summer 2012 to fourth quarter 2012. Significant efforts are on-going to both evaluate the true potential risk of a delay to start-up, and to identify and implement measures to mitigate any such delay. If this is not achieved the overall development expenditures for the first phase of Breagh development would be expected to be in the range of £590 to £595 million (100 percent), or £177 to £178.5 million net to Sterling, a 4 to 5 percent increase over the estimate provided in the Company's 2011 Annual Report. However, this cost increase will remain subject to downward revision should remediation measures be successfully implemented. It is hoped that further information can be made available early in June 2012. As at March 31st, 2012 cumulative expenditures were £90.4 million, with the remaining £86.6 to £88.1 million still to be invested in the completion of the onshore pipeline, onshore gas plant modifications, onshore compression and the development drilling program.
Commencement of the development drilling program at Breagh was delayed until May 2012 due to the retention of the ENSCO 70 by previous rig operators. Work has begun on both of the previously suspended wells 42/13-3 and 42/13-5Z, rerunning conductors through the platform and, on the 42/13-3 well, rerunning the production casing. Operations on the 42/13-3 well to sidetrack over the reservoir interval and to complete the well for production are expected during June. Similar operations on the 42/13-5Z well are planned for July. Following operations on these two suspended wells, up to eight further development wells will be drilled.
Sanction of the development of Breagh Phase 2 has been postponed until later in 2012. Sterling, with the operator RWE Dea, continues to consider a number of options for Phase 2 including a second platform as originally envisioned, or a sub-sea development of the eastern side of the field tied back to the existing Breagh platform. The utilization of additional seismic interpretation, further reservoir modeling, and data from the first production wells and early production history from Phase 1 will be utilized in selection of the optimum second phase of development.
Early in 2012 we announced our further success in the UK 26th Offshore Licensing Round in which Sterling was awarded three traditional licences (100 percent). The first of these licences covers 100 per cent of Blocks 43/15a and 43/20a in the UK Southern North Sea which contain a prospect in the Carboniferous Westphalian and Namurian formations as well as the abandoned Gordon gas field. The second licence, also in the UK Southern North Sea, covers 100 per cent of Blocks 49/18b and 49/19b which contain an undeveloped gas discovery, an additional prospect and further leads in the Rotliegend Leman sandstone. The final licence covers 50 per cent of Block 16/3d in the Central North Sea which contains part of the Cairngorm discovery. Earlier this month we announced that Sterling had concluded a transaction with Enquest for the exchange of our interest in Block 16/3d for their 10 percent interest in the F and L Quad blocks in the Netherlands, increasing our equity interest to 35 percent. Completion of the transaction is subject to co-venturer and governmental approvals.
In mid-April the Company announced the results of well 210/29c-5 drilled on the South Cladhan exploration prospect in the UK Northern North Sea. Although encountering Upper Jurassic sand channels, none of these appeared to be hydrocarbon bearing. The well was however drilled at no cost to Sterling, as it was part of the broader Cladhan sale and farmout with TAQA Bratani Limited (TAQA) subsequently announced in late April which resulted in TAQA earning one half of Sterling's 25 percent interest in South Cladhan.
On April 20th, subsequent to the quarter end, the Company was pleased to announce the divestment of a portion of Sterling's interest in Cladhan and a significant improvement to the terms of the Breagh credit facility which will see the minimum cash level for the next 12 months reduced from £35 to £20 million from April 1st, freeing up £15 million (approximately $24 million) for general corporate purposes. A sale and purchase agreement was signed 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, expected mid 2012; US$4.3 million to be paid upon the achievement of certain milestones likely to be attained around July; and the balance as a carry of a portion of Sterling's Cladhan development expenditures of up to US$53.6 million or, subject to satisfaction of certain conditions linked to project approval, a cash payment of up to US$20.4 million, or a combination of the two (at Sterling's election). In addition, 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. TAQA will assume operatorship upon approval of a final field development program which is expected to be submitted by the end of the third quarter of 2012. The sale of this portion of Cladhan leaves Sterling with a 26.4 percent interest, allowing us to retain interest in an attractive asset which may have significant upside.
The Company continued with the strategy in the Romanian Black Sea of building on the existing offshore acreage with the announcement in mid-March that the National Agency for Mineral Resources (NAMR) had approved Sterling's procurement of a 40 percent interest in the 1,000 square kilometre Block 27 (Muridava) concession. Block 27 was one of a number of offshore concessions awarded during the 10th Round in June of 2010, and ratified by the government in October 2011. This shallow water block is adjacent to Sterling's Pelican Block, contains multiple exploration plays, has existing 2D seismic coverage and contains an existing discovery well which was drilled in 2001. The Company believes Muridava is a highly prospective block and shooting of 3D seismic over it will take place this summer, with the intention to drill on the Block as early as 2013.
Late in the third quarter Sterling, with its partners, intends to begin drilling two offshore prospects in the Romanian Black Sea. The first of the two wells to be drilled will be the Ioana prospect located in the gas-prone Midia Block, directly northeast of the Ana and Doina discoveries. Following drilling of the Ioana well the jack-up rig will be moved to the Eugenia prospect in the Pelican Block.
In early February the Company announced the results of appraisal well F17-09 in Block F17a in the Dutch North Sea. An oil-water contact (OWC) at approximately 2,000 metres sub-sea was higher than anticipated, but similar to that observed in previous wells in the neighbouring compartments indicating communication with the previously drilled F17-03 well, with a resultant updip potential of up to 120 metres. F17-09 was intended to further define the extent of the oil accumulation first discovered nearly 30 years ago, and was useful in identifying the OWC and providing intelligence regarding the trapping mechanism. Evaluation of a number of development options for the greater F-quad are currently underway, incorporating previously drilled wells on Blocks F17a and F18, as well as further exploration prospects.
Sterling further expanded its footprint in the Netherlands with the announcement in early March that the Company was awarded a 50 percent interest in exploration licences for Blocks E3 and F1 in the Dutch North Sea. These blocks, covering 792 square kilometres, are located in the northern sector of the Dutch North Sea and have been awarded for a period of four years with a commitment to acquire approximately 600 square kilometres of 3D seismic, which will be shot later this year.
Subsequent to the quarter end Sterling announced that it had concluded a transaction with EnQuest to increase Sterling's interest in blocks F14, F16, F17a, F18 and L01b from 25 to 35 per cent through a UK asset swap as noted above.
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 TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this releasee.
Filer Profile No. 00002072
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 www.sterling-resources.com or contact:
Mike Azancot, President and Chief Executive Officer, Phone: 44-20-3008-8488, Mobile: 44-7740-432883, firstname.lastname@example.org
David Blewden, Chief Financial Officer, Phone: 44-20-3008-8488, Mobile: 44-7771-740804, email@example.com
George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Fax: (403) 215-9279, Mobile: (403) 519-3912, firstname.lastname@example.org