CALGARY, April 12, 2012 /CNW/ - Sterling Resources Ltd. (TSXV: 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, is pleased to announce operating and financial results for the year ended December 31, 2011. Unless otherwise noted all figures contained in this release are denominated in Canadian dollars.
The net loss for the year ended December 31, 2011 was $53.8 million ($0.27 per common share - basic and diluted) compared to a net loss of $22.1 million ($0.15 per share basic and diluted) for the year ended December 31, 2010.
This increased loss year over year can be attributed to a number of factors. Dry hole costs were $9.7 million, relating to Sterling's 57 percent share of the unsuccessful Grian exploration well, compared to dry hole costs of $6.5 million incurred during 2010 for the unsuccessful Airidh and Macanta exploration wells. The Kirkleatham onshore UK asset had problems with water production and was impaired by $2.9 million. There was a bad debt expense of $6.8 million which represents an overdue receivable from a co-venturer on the unsuccessful Grian well drilled in the UK North Sea during the first quarter of 2011. Pre-licence and other exploration costs of $13.2 million were $4.3 million higher than those incurred in 2010, with most of the additional costs associated with the start-up of operations in the Netherlands. Employee expenses of $9.0 million were $4.2 million higher than those incurred during 2010.
Cash balances gave rise to foreign exchange losses of $6.6 million, primarily due to the impact of a weakening US dollar versus the UK pound on translation of US dollar cash balances. In 2010, foreign exchange gains of $2.6 million occurred as a result of the US dollar strengthening against the UK pound. Net general and administrative expense decreased during 2011 to $3.1 million from $3.9 million in 2010, due to increased recoveries from third parties and greater amounts capitalized to assets.
As a requirement of the Breagh loan facility, monthly cash-settled put options to hedge 40 percent of the forecast P90 gas production for a 24 month period commencing October 1, 2012 were put in place. Half of the put options were purchased for an upfront cash premium, and the other half on a deferred premium basis. The Company has recognized the initial up-front premium paid for the put options as a derivative financial asset and, the deferred premium put options as a derivative financial liability, both of which are then revalued to a fair value at period ends, with any gain or loss recorded through the income statement in the same period in which it arises. At year-end 2011 the Company has recognized an unrealized loss of $2.5 million on these derivative financial instruments.
Cash and cash equivalents were $50.0 million at December 31, 2011 compared to $142.6 million at year-end 2010. Restricted cash of $5.5 million at December 31, 2011 ($1.0 million as at December 31, 2010) was cash held in escrow relating to the final costs of drilling programs on Cladhan and in the Netherlands. In previous quarterly financial results in 2011, an extra £10 million ($15.8 million) was included as restricted cash in current assets which is now held under non-current assets. This relates to part of the minimum group cash requirement which under the terms of the Company's credit facility is held in a separate account.
Net working capital of $36.0 million at December 31, 2011 has decreased substantially from the year-end 2010 level of $138.4 million due to the increase in operational activity at Breagh, drilling campaigns at Cladhan and Grian and the movement of £10 million ($15.8 million) of cash from current to non-current assets as referred to above.
During 2011 the Company transferred the Breagh asset following receipt of development approval, and the Kirkleatham asset following commencement of production, into development oil and gas properties. Breagh additions in 2011 totaled $124.3 million. No cost was recorded for development properties in 2010. Inclusion of corporate and other properties of $1.1 million gave a total balance for property, plant and equipment costs of $170.8 million (2010, $0.6 million) and after accumulated depreciation and depletion the total net book value of property, plant and equipment was $167.3 million (2010, $0.2 million).
Exploration and evaluation activity related costs during 2011 totalled approximately $53.5 million compared to $56.0 million during 2010. During 2011, $27.0 million was invested in the Cladhan drilling campaign, $6.6 million on the East Breagh well, $9.7 million on the Grian well, $7.0 million in the Netherlands and $3.2 million in other areas.
As at December 31, 2011, the Company had an estimated UK tax loss carry forward of approximately $328 million and other capital allowances of $42.1 million available to shield future taxable income in Canada, Romania and other international jurisdictions. These losses are not subject to expiry. In addition, the Company has approximately $30.5 million of Canadian and other international non-capital allowances which are subject to expiry over the next 20 years.
"In spite of a challenging business environment during 2011, the Company continued to progress towards the establishment of future cash flow through field development, with a core strategy of creating value through acquisition of exploration acreage and successful appraisal operations," stated Mike Azancot, Sterling's President and CEO. "Volatile markets, changes in UK fiscal terms, challenging geological results from some appraisal drilling, and slow progress in moving forward in Romania have not deterred us from the pursuit of our business model which remains sound and an asset base that is strong," added Mr. Azancot.
Operational Summary for 2011
- In the United Kingdom Sterling continued to advance the Breagh development in the North Sea. In March of 2011, Sterling announced the successful drilling of appraisal well 42/13a-6 in the Breagh field confirming material gas volumes in the eastern side of the field. The well was drilled to a measured depth of 8,624 feet and preliminary analysis of the open hole logs by the operator indicated 62 feet of net gas bearing sands. The well has been suspended for future use as a production well. During October, the Breagh Alpha production platform was successfully installed over the western portion of the field and later in the fourth quarter a 100 kilometre, 20 inch offshore pipeline was laid from the beach area at Coatham Sands near Teesside to the production platform. The maximum capacity of the Breagh pipeline and the onshore plant will be 400 MMscf per day, providing the flexibility to convey gas from potential satellite fields owned by Breagh partners and third parties. Drilling of development wells has been delayed as the designated jack-up drilling rig is not expected to arrive at Breagh until late in April 2012, having been delayed by a previous contractor. However, first gas production is still expected to commence early in the third quarter of 2012.
- During March of 2011, reflecting the Company's interest in the greater Cladhan area, reciprocal agreements were executed with Valiant Petroleum plc to facilitate the exchange of certain UK North Sea assets. Sterling acquired a 25 percent interest and operatorship of Blocks 210/29c and 210/30b in the Northern North Sea. In exchange, Valiant obtained a 40 percent interest in Sterling's Central North Sea licences in Blocks 21/30f and 22/26c, which had been awarded to Sterling during the 26th UKCS Licensing Round. An exploration well on the newly acquired Block 210/29c commenced in March of 2012.In March of 2011, well 48/28b-2 was completed on the Grian prospect in Block 48/28b in which Sterling held a 57 percent interest. Although a good quality sandstone reservoir was encountered, no hydrocarbons were found and the well was plugged and abandoned.
- In April of 2011, development of the Kirkleatham field in northeast England, in which Sterling holds a 47 percent interest, was completed. First gas production was achieved on April 19, 2011. Gas is sold to the nearby chemical plant.
- During the spring of 2011 the Company launched a major four well drilling campaign in the Northern Area of Cladhan in Blocks 210/30a and 210/29a. The results of this campaign can be summarized in relation to three areas in and around Cladhan. First, in the northern core area, where a common 1600 psi overpressure exists, an effective minimum vertical oil column of 1,228 feet has been established. This area now forms the basis for a commercial subsea development. Second, a well drilled to the east into one of the fan systems did not encounter moveable oil in tight sands as the proximity to a major fault may have caused cementation. Consequently, prospectivity still remains in the downdip fan area. Finally, two wells were drilled into the distinct 'B' and 'C' channels to the south of the northern core area which found sands at the same overpressure in each of the wells, but at lower pressure than in the core area. The overpressure was established in the 'C' channel in a water leg and in the 'B' channel through an oil-water contact. Both of these channels are expected to contain oil updip which will be part of the commercial development of the northern core area. In spite of the complex geology, Cladhan has sufficient resources to proceed with a staged development with oil production anticipated to begin in late 2014 or 2015. The drilling campaign also indicates that areas with additional resources are present that could be exploited from additional drilling and tieback to a core area facility.
- The year 2011 will be remembered as a key turning point for the Company in Romania. Early in the year preparations were made to drill offshore wells at Ioana and Eugenia in the Romanian Black Sea. Unfortunately the Company was unable to procure the necessary construction permit from the Romanian National Agency for Mineral Resources (NAMR) to proceed with offshore drilling plans, and due to the ambiguity as to the procedure and authority for the issuance of this permit, Sterling declared force majeure on the Midia and Pelican blocks under the terms of the Concession Agreement in late April. Following the invocation of force majeure Sterling filed a Notice of Default as a result of NAMR's failure to grant licence assignments to Sterling's intended partners for 35 percent of the licence (in aggregate) for the Midia and Pelican blocks.
In late June, having received no prompt resolution to these issues, Sterling filed a Notice of Dispute with the Government of Romania under the terms of a bilateral treaty between Romania and Canada. The Notice of Dispute allowed for a six month period of negotiations in which to resolve issues amicably, however if resolution was not possible, Sterling could elect to submit the matter to arbitration. Fortunately, this was not necessary as by October the Company was able to announce resolution of the three outstanding issues. First, the Romanian government announced that it had rescinded the construction permit law as it applied to offshore requirements enabling all operators in the Black Sea to continue work activities. Second, the Company reached agreement with the Government of Romania to assign licence interests to the two intended partners. Finally, confirmation was received that the entire offshore licence will now initially run to May 2014 with two further extension periods, each of three years in duration.
In mid-November the necessary documentation to assign the equity to partners and confirming the term of the licences with NAMR was executed. With these obstacles behind the Company in Romania exploration and appraisal activities in the Black Sea can resume and the development of the Ana and Doina gas fields can be advanced.
- In early September Sterling signed a farm-out agreement with Petro Ventures Netherlands B.V. covering licences within the F-Quad and L-Quad sectors offshore Netherlands. Sterling retains a 25 percent interest and operatorship of these shallow parts of five blocks (F14, F16, F17a, F18 and L01b) covering 1,550 square kilometres located 80 kilometres offshore in a water depth of 45 metres.
- Late in December operations commenced on the appraisal well on Block F17a in the Netherlands North Sea. F17-09 was Sterling's first well in the Netherlands and marked the initiation of the Company's offshore activities since entering the country in 2010.
Corporate Summary for 2011:
- In July the Company signed a loan facility agreement with a group of banks for a £105 million senior secured loan for the first phase of the Breagh gas field. The loan amount provided under the facility comprises a main tranche of £95 million and a cost-overrun tranche of £10 million and with a loan life of 6.5 years.
- During August the Company announced the closing of an offering of 32,143,000 shares at a price of $1.40 per share. The total offering resulted in Sterling receiving aggregate gross proceeds of approximately $45 million with the majority of the proceeds used to fund the liquidity threshold set under the terms of the £105 million senior secured loan facility to finance development of the first phase of the Breagh gas field.
- At the end of third quarter the £105 million senior secured loan facility used to finance the first phase of Breagh was finalized with the lending syndicate. At the end of 2011, the amount drawn under the facility was £49.1 million (equivalent of $77.4 million) of which £36.0 million had been paid to Sterling as a reimbursement of eligible expenditures already incurred.
- On January 12, 2012 the Company announced that it had been successful in the final portion of the UK 26th Offshore Licensing Round awards, and was being awarded five additional blocks covered by three licences.
- On February 7, 2012 the Company announced completion and preliminary results of the F17-09 well in block F17 of the Dutch North Sea. After reaching a depth of 2,200 metres, the well encountered a 10 metre gross oil interval (6 metre net oil interval), through interbedded sands with porosities averaging 24 percent. The oil -water contact (OWC) at approximately 2,000 metres subsea was shallower than anticipated but similar to that observed in previous wells, and communication with the previously drilled F17-03 well indicates an updip potential oil column of 120 metres. The results were useful in confirming the OWC and in providing an understanding of the trapping mechanism and quality of sands in the structure. Additional appraisal wells in the neighbouring structures will be required before a commercial development can be confirmed.
- On March 5, 2012 the Company announced that its wholly-owned subsidiary in the Netherlands had jointly been awarded the exploration licences E03 and F01 in the Dutch North Sea. These licences cover an area of 792 square kilometres and have been awarded jointly with Wintershall, who will be operator with 50 percent and Sterling, also with a 50 percent interest.
- On March 22, 2012 the Company announced that its wholly owned subsidiary in Romania has obtained approval from the NAMR for a 40 percent interest in the 1,000 square kilometre Romanian Black Sea concession Block 27 (Muridava).
- On April 12, 2012 the Company announced that the Cladhan South exploration well, 210/29c-5, was not believed to have encountered hydrocarbons and will be plugged and abandoned. The well was drilled at no cost to the Company pursuant to a farm-out agreement.
Reserves and Resources Summary:
| Company Share Reserves
as at December 31, 2011
| Net Present Value Before Tax(4)
as at December 31, 2011
(Millions of Canadian $)
| Proved plus
| Proved plus
| Proved plus
|Company Total (5,10)||23.6||32.6||42.2||638.9||873.6||1,102.1|
| Unrisked Contingent Resources (6)(8)
as at December 31, 2011
| Unrisked Prospective Resources (7)(8)
as at December 31, 2011
|P(90) (9)||P(50) (9)||P(10) (9)||P(90) (9)||P(50) (9)||P(10) (9)|
| Unrisked Unconventional Contingent
Resources as at December 31, 2011
| Unrisked Unconventional Prospective
Resources as at December 31, 2011
Company Share (11)
|P(90) (9)||P(50) (9)||P(10) (9)||P(90) (9)||P(50) (9)||P(10) (9)|
|(1)||Gross before royalties|
|(2)||Gas converted to boe at 6 Mcf = 1 boe|
|(4)||Discounted at 10% per annum|
|(5)||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. For Proved (1P) Reserves these totals have a higher than 90% probability of occurring on an unrisked basis. For Proved plus Probable plus Possible (3P) Reserves, these totals have a lower than 10% probability of occurring on an unrisked basis.|
|(6)||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.|
|(7)||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.|
|(8)||Company Resources totals shown by Resource category are statistical aggregates of unrisked Resources at a company level. For Contingent Resources the statistical aggregates assume no dependencies between discoveries and for Prospective Resources these statistical totals assume no dependencies between prospects.|
|(9)||The P(50) or 2C is considered to be the best estimate of the quantity that will actually be recovered. If probabilistic methods are used there is at least a 50 percent probability P(50) that the quantities actually recovered will equal or exceed the estimate. Similarly, the 1C or P(90) and 3C or P(10) represent the low and high estimates respectively.|
|(10)||The estimates of Reserves and Resources for individual properties may not reflect the same confidence level as estimates of Reserves and Resources for all properties, due to the effects of aggregation.|
|(11)||Unconventional Prospective Resources are based on the RPS assessment of Silurian Wenlockian shale gas potential in the Sud Craiova licence. RPS calculates the potential based on mapping of the extent of the Wenlockian shale, geochemical analysis of outcrop shale samples, a well test on licence that produced gas from the shale and comparison with the analogous Haynesville Shale gas reservoirs in the U.S.A. The volumes cited here are unrisked. RPS assigns a geological probability of success of 5 percent to the prospect.|
The Company's hydrocarbon resources were independently evaluated by RPS Energy in accordance with the Canadian Oil and Gas Evaluation Handbook ("COGEH") reserves definitions and evaluation practices and procedures, as specified by National Instrument 51-101. ("NI 51-101"). The definitions for each of the categories, including the conditions around Contingent Resources can be found on page 28 of Sterling's 2011 Annual Report. There is no certainty that it will be commercially viable to produce any portion of the Reserves.
The evaluation uses the RPS Energy forecast prices and costs as at December 31, 2011. Complete details regarding Sterling's Resources for the year ended December 31, 2011 and in a format specified by NI 51-101 can be found in Sterling's forthcoming Annual Information Form which will be filed on SEDAR at www.sedar.com or on the Company's website www.sterling-resources.com. Audited consolidated financial statements and associated notes, and the Management's Discussion and Analysis can also be found on SEDAR and at Sterling's website.
Neither the 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 release.
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 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: 44-20-3008-8488, Mobile: 44-7740-432883, [email protected]
David Blewden, Chief Financial Officer, Phone: 44-20-3008-8488, Mobile: 44-7771-740804, [email protected].
George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Mobile: (403) 519-3912, [email protected]