Sterling Resources Announces Filing of Annual NI 51-101 Reserves Report and Provides Summary of Reserves Results

CALGARY, March 27, 2015 /CNW/ - Sterling Resources Ltd. (TSX-V: SLG) ("Sterling" or the "Company") announces the filing of its annual reserves disclosure pursuant to National Instrument 51-101 ("NI 51-101") as at December 31, 2014, as evaluated by RPS Energy Canada Ltd. ("RPS"), the Company's independent reserves evaluator, in their report dated March 25, 2015.  An update of the Company's Contingent and Prospective Resources will be provided with the year-end financial and operating information in mid-April.  All dollar amounts in this news release are US dollars.

Breagh

During 2014, total field sales gas volumes were 29.5 billion cubic feet (Bcf) equating to an average rate of 81 million standard cubic feet per day ("MMscf/d") (24.2 MMscf/d net to Sterling). Average production uptime over the year was 81 percent, with an improved performance of around 95 percent being achieved by the end of the year, which has continued into 2015. Total condensate production for the year was 109.1 thousand barrels ("Mbbls") (32.7 Mbbls net to Sterling), equivalent to average production for the year of 0.29 thousand barrels per day ("Mbbls/d") (0.09 Mbbls/d net to Sterling).  

Key achievements during the year have been:

  • Completion of the first part of the Phase 1 development drilling campaign, culminating in the hydraulic stimulations of the A07 and A08 wells that started production in August and November of 2014, respectively.
  • Operational resolution of start-up issues on the Breagh processing facilities linked to fouling of slug catcher instrumentation, improving operation reliability in second half of 2014 and into 2015.
  • Acquisition of new 3D seismic across the Breagh field area for use in ongoing development of the field including the remaining Phase 1 drilling program and Phase 2 development planning.

Cladhan

The Cladhan development project continued to progress through 2014 in line with the Field Development Program requirements.  The development drilling included two high angle production wells and one high angle water injection well.  The first of the two development production wells, P1, was drilled with a high deviation to penetrate the Cladhan reservoir close to but updip from the exploration well 210/29a-4Z. The well encountered a total reservoir section of nearly 2,300 feet (measured depth) with a net pay of 815 feet measured depth.  The well was then suspended and the second production well, P2, was drilled to a southerly location, encountering thinner than expected sands at the heel of the well and little pay thereafter. The well was subsequently suspended to allow further analysis while the injector well W1 was being drilled.  The rig re-entered the previously suspended 210/29a-6 well and sidetracked to the W1 development position in the eastern area of the field. The well penetrated a gross reservoir thickness of 3,900 feet (measured depth) through which a number of moderate quality channel sands were encountered.  The P1 and W1 wells were subsequently completed. 

After these completions were made, the rig returned to re-drill the P2 well, which encountered a gross reservoir section of 1,930 feet with approximately 220 feet of net pay. Completion of the P2 well finished in Q1 2015.

Development activities for both topsides and subsea workscopes are well progressed.  However, during 2014 both cost and schedule overruns have been realized associated with technical, weather and supply chain issues. Technical issues are now resolved with a revised schedule and forward budget. The impact of these combined effects leaves limited contingency in the project schedule going forward, which is a key issue for the remaining subsea installation activity. The remaining subsea activities are scheduled for the summer construction window to mitigate further schedule delays due to weather downtime.

Reserves and Net Present Values

The longer-term production performance of all the Breagh wells has been estimated using normal industry practices. Production data has been obtained during 2014 improving the reliability of the forecasts. The long-term performance has been estimated using the Company's technical model tested against the more continuous production data acquired during 2014 and early 2015.  In addition, the Company has estimated recoveries using decline curve and material balance techniques.

The longer-term production performance of the Cladhan production wells has been estimated using normal industry practices using the Company's technical model. 

These data and analyses for Breagh and Cladhan have been reviewed and RPS has therefore provided a range of production and reserves estimates to account for potential uncertainty in the forecasts and recoveries.

The following tables provide a reserves and Net Present Value summary as at December 31, 2014 and changes from December 31, 2013, together with associated assumptions on accumulated tax allowances used in calculating the after-tax values.

Reserves Summary (Based on Forecast Prices and Costs) (1)


Company Share Gross(2) and Net Oil 
and Gas Reserves
as at December 31, 2014
(MMboe)(4)

Summary of Net Present Value of Future Net 
Revenue Before Income Tax(7)
as at December 31, 2014
($million)

Summary of Net Present Value of Future Net 
Revenue After Income Tax(7)
as at December 31, 2014
($million)


Total 
Proved

Proved 
plus 
Probable

Proved plus 
Probable plus 
Possible(3)

Total 
Proved

Proved plus 
Probable

Proved plus 
Probable plus 
Possible(3)

Total 
Proved

Proved plus 
Probable

Proved plus 
Probable plus 
Possible(3)

Breagh (5)

18.0

22.7

30.2

377

496

675

346

403

481

Cladhan (6)

0.1

0.5

0.8

4

13

30

4

13

30

Company Total (8,9)

18.1

23.1

31.0

382

509

705

350

416

511

 

Reserves Summary Change since December 31, 2013 (Based on Forecast Prices and Costs) (1)


Change in Company Share Gross(2) and Net Oil 
and Gas Reserves
as at December 31, 2014
(MMboe)(4)

Change in Net Present Value of Future Net 
Revenue Before Income Tax(7)
as at December 31, 2014
($million)

Change in Net Present Value of Future Net 
Revenue After Income Tax(7)
as at December 31, 2014
($million)


Total 
Proved

Proved 
plus 
Probable

Proved plus 
Probable plus 
Possible(3)

Total 
Proved

Proved plus 
Probable

Proved plus 
Probable plus 
Possible(3)

Total 
Proved

Proved plus 
Probable

Proved plus 
Probable plus 
Possible(3)

Breagh (5)

(5.4)

(7.9)

(9.8)

(115)

(184)

(238)

(9)

(36)

(55)

Cladhan (6)

(0.8)

(1.3)

(1.6)

(49)

(86)

(101)

(47)

(62)

(55)

Company Total (8,9)

(6.2)

(9.2)

(11.6)

(163)

(270)

(339)

(56)

(98)

(110)

 

                                Tax Allowances used in After-tax Values (10)


Tax allowances as at
December 31, 2014

£million

Tax allowances as at
December 31, 2013

£million

Change from end-2013 to end-2014
£million

Breagh

285

232

53

Cladhan

38

34

4

 

Breagh Changes

From end-2013 to end-2014, Breagh field proved plus probable (2P) reserves decreased by 7.9 MMboe in volume, $184 million in pre-tax value and $36 million in after-tax value. The change in reserves and value are principally due to sales gas production in 2014 of 1.5 MMboe and reclassification of reserves previously associated with the Phase 2 development to be implemented in the south-western area of the field to Contingent Resources due to the delays and deferrals in commitment to the project.  Once a definitive Phase 2 development plan is approved for commitment, the Contingent Resources will be reclassified back to Reserves.  It should be noted that the after-tax values at end-2013 and end-2014 assume a Supplementary Charge Corporation Tax rate of 32 percent, which post the UK 2015 Budget has been reduced to 20 percent with effect from January 1, 2015.

Available tax allowances have increased since end-2013 principally as a result of additional capital expenditures during 2014 on Breagh and neighbouring licences, supplemented by RFES applied on the notional net loss at a field level at end-2014, offset by taxable operating profit from the field during the year.

Cladhan Changes

From end-2013 to end-2014, Cladhan field 2P reserves decreased by 1.3 MMboe in volume, $86 million in pre-tax value and $62 million in after-tax value. The reserves decrease is principally due to the poorer net pay results in the southern extent of the field development area following the drilling of the P2 and the sidetracked P2Z wells. The value decrease is principally due to the change in production profile due to the reserves change, and commensurate increased time to financial payback of the Cladhan development carry due to a combination of increase development costs and significantly reduced oil price forecasts.  It should be noted that Cladhan is not projected to pay tax in the projected cash flows used to calculate the December 31, 2014 values.

Available tax allowances have increased since end-2013 principally as a result of RFES applied on the notional net loss at a field level at end-2014.

Breagh and Cladhan production and capital expenditure forecasts

The Company's revised production five-year production and capital expenditure forecasts for the Breagh and Cladhan field developments are as follows (Mboe/d = thousands of barrels of oil equivalent per day):

            Company net Five-Year Proved plus Probable Production forecast
                         and associated Capital Expenditure forecast


Breagh

Cladhan

Net Average Production rate

(Mboe/d)

Capital costs

($ million)

Net Average Production rate

(Mbbls/d)

Capital costs

($million)

2015

5.37

51.1

0.08

1.9

2016

7.47

64.0

0.26

0

2017

7.88

9.4

0.09

0

2018

6.48

0

0.28

0

2019

4.83

0

0.22

0

 

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.

Numbers may not correspond precisely with those set forth in the Company's annual disclosure in Form 51-101F1 due to the effects of rounding.

(2)

Gross before royalties. 

(3)

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.

(4)

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. 

(5)

Breagh Reserves are predominantly gas. 

(6)

Oil.


(7)

Discounted at 10 percent per annum.

(8)

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);

-          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). 

(9)

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.

(10)

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.

 

The Company's hydrocarbon Reserves were independently evaluated by RPS effective December 31, 2014 in accordance with the Canadian Oil and Gas Evaluation Handbook ("COGEH"). Reserves definitions and evaluation practices and procedures, as specified by NI 51-101. There is no certainty that it will be commercially viable to produce any portion of the Reserves. The evaluation uses RPS Energy forecast prices and costs as at December 31, 2014.  Complete details regarding Sterling's reserves for the year ended December 31, 2014 can be found on SEDAR at www.sedar.com or on the Company's website 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 and The Netherlands.  The common shares are listed and posted for trading on the Toronto Stock Exchange Venture (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 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 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: 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

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