Sterling Resources Announces Breagh Field Reserves and NPV Update

CALGARY, Aug. 20, 2015 /CNW/ - Sterling Resources Ltd. (TSX-V: SLG) ("Sterling" or the "Company") announces an update of its Breagh field reserves and net present value disclosure as at June 30, 2015 as evaluated by RPS Energy Canada Ltd. ("RPS"), the Company's independent reserves evaluator, in their report dated August 20, 2015 prepared in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (the "Breagh Update Report").   This report has been prepared in light of the changes to the expected future development program and costs since end-2014 and to reflect the important pressure build-up information from the June annual shutdown, and will assist in the Company's ongoing refinancing initiatives.  No update evaluation has been conducted by RPS at this time in relation to Sterling's Cladhan oil field, which is located in a different geographic area of the UK. All dollar amounts in this news release are US dollars. 

Reserves and Net Present Values

The longer-term production performance of all the Breagh wells has been estimated by RPS using normal industry practices. Production data have been obtained during the first half of 2015 supplemented by pressure build-up data which were recorded for each of the wells during the three-week annual shutdown in June 2015.  The long-term performance has been estimated by RPS using the Company's reservoir simulation model tested against historic production data as well as using decline curve analysis and material balance techniques.  RPS has provided a range of production and reserves estimates to account for potential uncertainty in the forecasts and recoveries.

As well as reflecting the updated production profiles, RPS's economic model was updated to reflect current tax positions, revised capital programs, the onshore gas compression basis and operating costs, and future hydrocarbon prices.

The executive summary of the Breagh Update Report prepared by RPS will be filed shortly on the Company's profile on SEDAR at www.sedar.com and on the Company's website at www.sterling-resources.com.

The following tables provide a reserves and Net Present Value summary as at June 30, 2015 and changes from December 31, 2014, together with associated assumptions on accumulated tax allowances used in calculating the after-tax values.

Breagh Reserves Summary (Based on Forecast Prices and Costs)(1) (6) (7) (8)






Reserves

Category(3)

Company Share Gross(2) and Net Oil

and Gas Reserves as at June 30, 2015

Summary of Net

Present Value of Future

Net Revenue Before

Income Tax as at

June 30, 2015

Summary of Net

Present Value of

Future Net Revenue

After Income Tax as at

June 30, 2015




Sales Gas

NGL

BOE(5)


MMscf

MMbbl

MMboe

(US$ million)

(US$ million)









PDP

54,796

0.199

9.33

202

202


PDNP

0

0

0

0

0


PUD

48,776

182

8,312

162

117


1P

103,572

0.381

17.64

364

319


2P

135,469

0.499

23.08

493

388


3P(4)

174,300

0.643

29.69

639

464









Breagh Reserves Summary Changes since December 31, 2014 (Based on Forecast Prices and Costs)(1) (6) (7) (8)






Reserves

Category(3)

Company Share Gross(2) and Net Oil

and Gas Reserves as at June 30, 2015

Summary of Net

Present Value of Future

Net Revenue Before

Income Tax as at

June 30, 2015

Summary of Net

Present Value of

Future Net Revenue

After Income Tax as at

June 30, 2015




Sales Gas

NGL

BOE(5)


MMscf

MMbbl

MMboe

(US$ million)

(US$ million)









PDP

4,884

0.018

0.83

(8)

(6)


PDNP

0

0

0

0

0


PUD

(6,770)

(0.020)

(1,148)

(6)

(21)


1P

(1,886)

(0.002)

(0.316)

(13)

(27)


2P

2,193

0.015

0.38

(3)

(14)


3P(4)

(2,946)

(0.001)

(0.49)

(36)

(17)









PDP

– Proved Developed Producing

PDNP

– Proved Developed Non-Producing

PUD

– Proved Undeveloped

1P

– Total Proven = PDP + PDNP + PUD

2P

– Total Proven plus Probable

3P

– Total Proven plus Probable plus Possible

RPS has incorporated UK corporation tax allowances of £233 million as at June 30, 2015 in its After-tax Valuations, decreased from £285 million as at December 31, 2014.  It should be noted that the After-tax Values shown above do not reflect the full amount of corporate tax losses available to Sterling.  As stated in the Company's second quarter 2015 operating and financial results filed on August 6, 2015, the full amount of the UK tax losses at June 30, 2015 was £454 million for ring fence corporation tax and £403 million for supplementary charge corporate tax. 

Breagh Changes

Company share net Proved Developed Producing (PDP) reserves increased by 0.8 MMboe from December 31, 2014.  

Technical revisions (subsurface evaluation) have led to increased reserves in the PDP, 1P and 2P cases as a result of the positive indication from the pressure build-ups and decline curve analysis from all of the current producing wells.  These increases have been offset by a deduction of fuel gas volumes for onshore compression (apart from the PDP case, where no onshore compression is assumed).

Further reserves additions due to economic factors have been made for the 1P, 2P and 3P cases relating to lower long term operating costs.

In all cases, the reserves revisions have been offset by net production of 0.97 MMboe during the first half of 2015.

The table below provides the various factors contributing to the revision between the 2014 year-end reserves and June 30, 2015 reporting.

Breagh Reconciliation of Reserves Changes since December 31, 2014 (based on Forecast Prices and Costs)(1) (3) (5)













FACTORS


PDP


1P


2P


3P





(MMboe)


(MMboe)


(MMboe)


(MMboe)


December 31, 2014


8.50


17.96


22.70


30.19




Subsurface evaluation


1.94


0.31


0.35


(0.96)




Compression fuel


-


(0.24)


(0.33)


(0.45)



Technical Revisions - total


1.94


0.07


0.02


(1.41)



Economic Factors


(0.14)


0.58


1.33


1.88



Production + Inventory changes


(0.97)


(0.97)


(0.97)


(0.97)


June 30, 2015


9.33


17.64


23.08


29.69


Available tax allowances have increased since end-2014 principally as a result of additional capital expenditures during the first half of 2015 on Breagh, supplemented by six months RFES (as defined below in Note 8) applied on the notional net loss at a field level at June 30, 2015, offset by taxable operating profit from the field during the period.

Breagh Production and Capital Expenditure Forecasts

The Company's revised production and capital expenditure forecasts for the next four and a half years for the Breagh field are as follows:

Breagh Net Five-Year Proved plus Probable Production Forecast and Associated Capital Expenditure Forecast






Net Average

Production

rate

(Mboe/d)

Capital costs

(US$ million)

Program description and timing

Second half 2015

5.02

20.6

·

2 new wells (A09 & A10) plus one re-entry and sidetrack commencing December 2015




·

FEED work for Compression. Commitment to compressor long leads

2016

5.11

45.3

·

2 new wells (A11 & A12) plus one re-entry and sidetrack commencing June 2016




·

Installation of compression

2017

8.10

26.9

·

Completion of the compression project

2018

7.59

0


2019

5.80

0


Mboe/d = thousands of barrels of oil equivalent per day

The capital costs exclude pre-sanction costs for Phase 2, which are expected by Sterling to amount to $2 million net to the Company in the second half of 2015.  The capital costs estimates include a further 10% contingency for drilling costs and a further 15 percent contingency for the compression project compared to Sterling's assumptions in its second quarter operating and financial results (announced on August 6, 2015).

Notes:

(1)

Estimates of Reserves and Future Net Revenue have been made assuming the development of each property in respect of which the estimate is made will occur, without regard to the likely availability to the Company of funding required for that development.

(2)

Gross before royalties. 

(3)

Company Reserves totals are arithmetic aggregations of multiple estimates, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give particular attention to the estimates of individual classes of Reserves and appreciate the differing probabilities of recovery associated with each class under a specific set of economic conditions:


-

At least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated Proved reserves (1P). Proved Developed Producing (PDP) represents estimates made from existing field wells;


-

At least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated Proved plus Probable reserves (2P); and


-

At least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated Proved plus Probable plus Possible reserves (3P).

(4)

Possible Reserves are those additional reserves that are less certain to be recovered than Probable Reserves.  There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of Proved plus Probable plus Possible Reserves. In this instance the gross values are the same as the net values because the royalty is zero.

(5)

MMboes may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 Mcf : 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 

(6)

Discounted at 10 percent per annum.   All figures provided by RPS as at June 30, 2015 and used in the Breagh Update Report. There is no assurance that the forecast price and cost assumptions contained in the Breagh Update Report will be attained and variations could be material.




Breagh gas is forecast to trade at the NBP index price; in nominal terms: second half 2015 $6.74/Mcf, 2016 $7.89/Mcf, 2017 $8.873/Mcf, 2018 $9.16/Mcf, thereafter +2% per annum.




Breagh condensate is forecast to trade at the Brent Crude oil price, in nominal terms: second half 2015 $60.90/bbl, 2016 $68.00/bbl, 2017 $75.00/bbl, 2018 $81.00/bbl, 2019 $86.00/bbl, 2020 $90.00/bbl, 2021 $94.00/bbl, 2022 $97.64/bbl, thereafter +2% per annum.

(7)

The estimates of Reserves and Future Net Revenue for individual properties may not reflect the same confidence level as estimates of Reserves and Future Net Revenue for all properties, due to the effects of aggregation.

(8)

Tax allowances assumed to be available to offset future Corporation Tax (CT) and Supplementary Charge Corporation Tax (SCT) comprise historic capital allowances and cumulative Ring Fence Expenditure Supplement (RFES).  RFES is a 10% annual uplift, available on cumulative tax losses for CT and SCT, for up to 6 accounting periods on a compounded basis.  In these valuations it has been applied on the cumulative notional net loss at field level.



Reserves definitions are as specified by National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities, including by reference to CSA Staff Notice 51-324 – Glossary of NI 51-101 Standards of Disclosure for Oil and Gas Activities. There is no certainty that it will be commercially viable to produce any portion of the Reserves. The estimated future net revenue figures contained in the foregoing tables do not necessarily represent the fair market value of the Company's reserves. The recovery and reserve estimates attributed to Breagh are estimates only and there is no guarantee that the estimated reserves will be recovered. The actual reserves of Breagh may be greater or less than those calculated.

Complete details regarding Sterling's reserves and resources for the year ended December 31, 2014 can be found on the Company's profile on SEDAR at www.sedar.com or on the Company's website at www.sterling-resources.com.

Sterling is a Canadian listed international oil and gas company headquartered in Calgary, Alberta with assets in the United Kingdom, Romania, the Netherlands and France.  The common shares are listed and posted for trading on the TSX Venture Exchange (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

Statements relating to expected production, reserves, costs and valuation are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future.

These forward-looking statements involve numerous assumptions made by RPS and 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 news 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 purposes other than for which it is disclosed herein.

SOURCE Sterling Resources Ltd.

For further information: For further information: visit www.sterling-resources.com or contact: Jacob Ulrich, Chief Executive Officer, Phone: +1 (403) 237-9256, jake.ulrich@sterling-resources.com; David Blewden, Chief Financial Officer, Phone: +1 (403) 237-9256, 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

RELATED LINKS
http://www.sterling-resources.com

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890