Sterling Resources Announces Revision to Breagh and Cladhan After-Tax Reserves Valuations and New Cladhan Reserves and Resources

CALGARY, May 27, 2013 /CNW/ - Sterling Resources Ltd. (TSX-V: SLG) ("Sterling" or the "Company"), announces certain changes to after-tax reserves valuations for Breagh and Cladhan, and new reserves and resources for the Cladhan field.  The after-tax reserves valuations for Breagh and Cladhan have changed as a result of a correction to the way taxes were previously calculated by RPS Energy ("RPS").  Reserves and resources for the Cladhan field have been revised to reflect the impact of the recent farm-down and second carry transactions with TAQA Bratani Limited (the "Second TAQA Transaction") as announced on April 8, 2013. This has also contributed to a further change in before-tax and after-tax valuations for Cladhan.

In relation to the revised tax calculations, the previous evaluations for Breagh and Cladhan prepared by RPS were set out in update reports dated April 4, 2013 and March 15, 2013, respectively (both available on SEDAR).  These update reports assume for Breagh a first gas date of August 1, 2013 and for Cladhan, the 26.4 percent Company interest that applied before the Second TAQA Transaction.  The revised summary evaluations are contained in the RPS update report are dated May 21, 2013 which will be available on SEDAR and the Company's website.  At a 10 percent discount rate, at an effective date of December 31, 2012, the after-tax net present value ("NPV") of Company interest Proved plus Probable Reserves for Breagh (Phases 1 and 2) has increased by approximately $40 million and for Cladhan (prior to the Second TAQA Transaction) has decreased by approximately $13 million.  Before-tax NPVs are unaffected.

In relation to the revised evaluation of Cladhan to reflect the impact of the Second TAQA Transaction, a further update report dated May 23, 2013 prepared by RPS is also available on SEDAR and the Company's website.  This shows that at a 10 percent discount rate, at an effective date of December 31, 2012, the after-tax NPV of Company interest Proved plus Probable Reserves has decreased by approximately $22 million from the equivalent value using the corrected tax calculations in the report dated May 21, 2013, a drop of 23 percent. In terms of reserves and resources, Cladhan Proved plus Probable Reserves have decreased from 4.4 million barrels ("MMbbls") of oil to 1.9 MMbbls. For the P1064 licence (Main Cladhan field area), P50 Contingent Resources have decreased from 0.6 to 0.3 MMbbls and Best Estimate Prospective Resources have decreased from 9.0 to 4.7 MMbbls.  At a Company level, there is a further minor decrease in Best Estimate Prospective Resources of 2.1 MMbbls as a result of the transfer of the Company's remaining 12.5 percent interest in the P1680 licence (South Cladhan) as part of the Second TAQA Transaction.

Revised Company interest reserves, resources and valuations are set out below, followed by a description of the background to the revisions and finally estimation by Sterling of the value of the remaining UK corporate tax loss not captured by the RPS valuations.

Revised Company Reserves, Resources and NPVs

Summary of Oil and Gas Reserves as of December 31, 2012
Forecast Prices and Costs
         
    LIGHT AND MEDIUM
OIL
NATURAL GAS NATURAL GAS
LIQUIDS
  RESERVE CATEGORY Gross
(Mbbl)
Net
(Mbbl)
   Gross (MMscf)    Net (MMscf)    Gross (Mbbl)    Net (Mbbl)
               
PROVED            
  Developed Producing - - - - - -
  Developed Non Producing - - 132,561 132,561 543 543
  Undeveloped 1,086 1,086 - - - -
TOTAL PROVED 1,086 1,086 132,561 132,561 543 543
Probable 1,649 1,649 48,609 48,609 199 199
TOTAL PROVED PLUS PROBABLE 1,896 1,896 181,169 181,169 742 742
Possible 1,561 1,561 52,451 52,451 215 215
TOTAL PROV + PROB + POSS 2,712 2,712 233,621 233,621 957 957

 
Summary of Net Present Value of Future Net Revenue as of December 31, 2012
Forecast Prices and Costs (CAD $ millions)
     
  RESERVE CATEGORY BEFORE INCOME TAXES
    0%   5%   10%   15%   20%
PROVED                  
  Developed Producing -   -   -   -   -
  Developed Non Producing 1,023   780   614   498   413
  Undeveloped 80   70   61   53   47
TOTAL PROVED 1,103   850   675   551   460
Probable 497   332   235   174   134
TOTAL PROVED PLUS PROBABLE 1,601   1,181   910   725   594
Possible 549   321   203   138   99
TOTAL PROV + PROB + POSS 2,150   1,500   1,110   859   689
 
     
  RESERVE CATEGORY AFTER INCOME TAXES
    0%   5%   10%   15%   20%
PROVED                  
  Developed Producing -   -   -   -   -
  Developed Non Producing 544   444   371   316   274
  Undeveloped 78   68   59   52   46
TOTAL PROVED 622   512   430   368   320
Probable 177   124   91   71   58
TOTAL PROVED PLUS PROBABLE 800   635   521   439   377
Possible 199   116   74   51   37
TOTAL PROV + PROB + POSS 995   751   597   492   417

Notes
(1)   Mbbl = thousands of barrels
(2)    MMscf = millions of standard cubic feet

Revised End-2012 After-tax Valuations

The revisions to the after-tax NPVs of Breagh and Cladhan have arisen as a result of corrections to the way that two UK tax allowances, Ring Fence Expenditure Supplement ("RFES") and Small Field Allowance ("SFA"), have been modeled by RPS.  In addition, the phasing of installments for tax payments has been incorporated into the modeling.  The approach adopted by RPS is to include the tax losses at the end of 2012 associated with each asset arising from past licence expenditures, together with accumulated RFES on such expenditures, and to calculate future taxes which reflect future application of RFES for years advised by Sterling and, for Cladhan, to include the benefit of future SFA.  Such losses amount to £158.1 million for Breagh and £34.5 million for Cladhan at December 31, 2012.

A comparison of the Company interest after-tax NPVs at December 31, 2012 (at a 10 percent discount rate) between the current and previous reports is set out in the table below titled "Changes in After-Tax NPV."  For Breagh, a revised first gas date of August 1, 2013 has been assumed by RPS, based on updated Company advice and, as assumed previously, payments to Gemini Oil & Gas Fund II, L.P. pursuant to the 2007 Gemini Loan Agreement have been included within operating costs.  The Cladhan values are for a flat 26.4 percent Company interest and do not reflect the impact of the Second TAQA Transaction.

Changes in After-Tax NPV

Asset Company
interest
Scenario Reserves
   category(1)   
   After tax NPV(2,3), $ millions       Change in    
after-tax
NPV
Previous Current
Breagh 30%    Phases 1&2    1P 330 371 +12%
Breagh 30% Phases 1&2 2P 407 447 +10%
Breagh 30% Phases 1&2 3P 470 512 +9%
Cladhan 26.4% N/A 1P 58 57 -2%
Cladhan 26.4% N/A 2P 109 96 -12%
   Cladhan    26.4% N/A 3P 140 119 -15%

Notes
(1)  1P = Proved; 2P = Proved plus Probable, 3P = Proved plus Probable plus Possible.  Possible Reserves are those additional Reserves that are less certain to be recovered than Probable Reserves.  There is a 10% probability that the quantities actually recovered will equal or exceed the sum of Proved plus Probable plus Possible Reserves.
   
(2) Estimates of future net revenue have been made assuming that development of each property in respect of which the estimate is made will occur, without regard to the likely availability to Sterling of funding required for that development.
   
(3)  Tax calculations at 30 percent Corporation Tax (CT) and 32 percent Supplementary Corporation Tax (SCT) as in effect December 31, 2012 from profits arising from UK Oil and Gas ring fence activities. Small Field Allowance incentives have been applied as appropriate (i.e. relief from SCT) and application of Ring Fence Expenditure Supplement on tax losses for the years of 2014, 2015 and 2016.

Revised Cladhan Evaluation after Second TAQA Transaction

The new evaluation assuming the Second TAQA Transaction completes as expected affects Reserves, Contingent Resources, Prospective Resources and the NPVs of Reserves. The results are summarised in Tables 2a, 2b and 2c below for the Company interest which will be 2.0 percent until the second carry reaches pay-out and 13.8 percent thereafter (as described in the Company's news release of April 8, 2013).

Cladhan Reserves

   Category(1)    Reserves
   MMbbls(2)   
Change in
    Reserves(3)   
After-tax
NPV(4,5)
   $ millions   
Change in
NPV(6)
1P 1.1 -60% 59 +4%
2P 1.9 -57% 74 -23%
3P 2.7 -52% 85 -29%

Cladhan Contingent Resources    

Category(7)    Resources  
    MMbbls(2)   
   Change(3)   
1C 0.04 -52%
2C 0.3 -52%
3C 0.6 -52% 

Cladhan Prospective Resources

   Category(8)      Resources   
MMbbls(2)
  Change(3)  
 Low 3.5 -52%
 Best 4.7 -52%
 High 6.5 -52%

 

Notes
(1) 1P = Proved, 2P = Proved plus Probable, 3P = Proved plus Probable plus Possible.  Possible Reserves are those additional Reserves that are less certain to be recovered than Probable Reserves.  There is a 10% probability that the quantities actually recovered will equal or exceed the sum of Proved plus Probable plus Possible Reserves.
   
(2) MMbbls = millions of barrels of oil.
   
(3)   Change in volume from equivalent figure in 2012 year-end NI 51-101 F1.
   
(4)   Net Present Value at December 31, 2012 discounted at 10 percent per annum.  Estimates of future net revenue have been made assuming that development of each property in respect of which the estimate is made will occur, without regard to the likely availability to Sterling of funding required for that development.
   
(5)  Tax calculations at 30 percent Corporation Tax ("CT") and 32 percent Supplementary Corporation Tax ("SCT") as in effect December 31, 2012 from profits arising from UK Oil and Gas ring fence activities. SFA incentives have been applied as appropriate (i.e. relief from SCT) and application of RFES on tax losses for the years of 2013, 2014, and 2015.
   
(6) Change in NPV compared to the corresponding figure in the table above titled "Changes in After-Tax NPV."
   
(7) 1C = Contingent Resources at P90 confidence level, 2C = Contingent Resources at P50 confidence level, 3C = Contingent Resources at P10 confidence level.  Contingent Resources are those quantities of petroleum estimated as of a given date to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. The Resources volumes shown represent probabilistic totals of several entities within each licence or block area. There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources.
   
(8) Low = Prospective Resources at P90 confidence level, Best = Best Estimate Prospective Resources (at P50 confidence level), High = Prospective Resources at P10 confidence level.  Prospective Resources are those quantities of petroleum estimated as of a given date to be potentially recoverable from undiscovered accumulations by application of future development projects. There is no certainty that any portion of the Prospective Resources will be discovered or, if discovered, that it will be commercially viable to produce any portion of the Resources. These Prospective Resources are in areas of the field or geological horizons, in which the presence of hydrocarbons require confirmation by drilling.

Value of Remaining UK Corporate Tax Loss

As at December 31, 2012 the Company reported a UK CT loss of £289 million and an SCT loss of £283 million.  Of these amounts, as noted above £158.1 million has been reflected in the RPS valuation of Breagh and £34.5 million in the RPS valuation of Cladhan (these losses are the same for both CT and SCT).  The additional value of the remaining tax loss, representing the difference between the valuation of the full UK corporate tax loss and the valuations of the losses included by RPS for Breagh and Cladhan, assuming future application of RFES over 2013 to- 2015 and reflecting base case economic assumptions, is estimated by Sterling to be $83 million at December 31, 2012 discounted at 10 percent per annum.

Sterling 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 common shares are listed and posted for trading on the TSX-V under the symbol "SLG".

Neither the TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this release.

Filer Profile No. 00002072 

Forward-Looking Statements

All statements included in this news 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, delays in production, third party performance failures, 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 news 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 news release should not be used for purpose other than for which it is disclosed herein.


 

 

SOURCE: Sterling Resources Ltd.

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, 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: (403) 215-9265, Mobile: (403) 519-3912, george.kesteven@sterling-resources.com


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