CALGARY, March 7, 2012 /CNW/ - Sterling Resources Ltd. (TSX-V:SLG) ("Sterling" or the "Company") on behalf of its wholly-owned subsidiary Sterling Resources UK Ltd, is providing an update on its year-end reserves, the Breagh project, the senior secured loan facility, and the Cladhan interests.
Sterling is pleased to report that Breagh field Phase 1 development is progressing towards sales gas in August 2012 and pre-sales production of gas in July 2012. Some notable highlights of the development are as follows:
- The Breagh Alpha platform was installed in October 2011 and final platform and pipeline hook-ups were performed with the platform control fiber optic cable pulled onto the platform and pipeline tie-in spools installed during December 2011 to January 2012.
- The offshore 20 inch export pipeline has been laid and pressure tested to the beach valve station. The pipeline installation experienced cost overruns due mainly to a delayed start and harder than expected trenching conditions resulting in additional rock-dumping to cover the 3 inch methanol pipeline. Near-shore trenching and rock-dumping has been completed but offshore rock-dumping to cover the 3 inch methanol line awaits environmental approvals for the additional coverage required. The remaining rock dumping is expected to be completed by April 2012.
- At the end of February 2012, the onshore plant was 54 percent complete and the onshore pipeline was 33 percent complete. Work is progressing on several fronts including the highly deviated drilling work under the River Tees. Physical completion of the pipeline up to the onshore slug catchers is expected by early July, when production is expected to commence initially to pack the export pipeline. First gas sales from Breagh are expected in early August 2012 as a result of minor delays to repair plant equipment damaged in shipping and to complete the processing plant.
- The final Phase 1 development cost for Breagh is forecast by the operator RWE Dea to be £566 million (100 percent) or £170 million net to Sterling, an increase of 17 percent over the original cost estimate of £485 million (100 percent) set out in the Field Development Program approved in July 2011. The major components of the cost increase relate to offshore pipeline installation, onshore pipeline installation and development drilling.
- Drilling rig activities are expected to commence in early April 2012 as the ENSCO 70 rig has been delayed by previous rig operators. Work will commence with the sidetrack and tie-back of two suspended wells, followed by the drilling of up to eight further development wells of which the last three are highly deviated and may be drilled instead as part of a Phase 2 development.
- The Breagh project has been conducted with an excellent HSE performance and over 1.3 million man-hours have been completed without a Health, Safety or Environmental incident.
Sanction of the second phase of the development has been moved to later in 2012. The partnership continues the evaluation of Phase 2 development options from either a second platform (Breagh Bravo) or with subsea wells tied-back to the Breagh Alpha platform. This evaluation aims to utilize additional seismic interpretation, further reservoir modeling, data from the first production wells and early production history to enhance the full field development plan through an optimized phased development.
RPS Energy, Sterling's independent reserves evaluator, has completed the Breagh 2011 year-end evaluation of reserves in accordance with the standards contained in the COGE Handbook effective as of December 31, 2011. Compared to the May 2011 reserves update, full field Proved and Probable reserves have decreased by 11 percent due mainly to revised understanding and mapping of the reservoirs sands over the eastern side of the field. However, Proved and Probable reserves for Phase 1 of the development have increased by 4 percent.
RPS Energy has also completed the evaluation of reserves for the Company's other assets which are reported here for completeness. The Sheryl Field reserves have remained the same as 2010 year-end, whereas the Kirkleatham field has decreased slightly due to production from the field during 2011 and resultant evaluation.
| Company Share Gross Reserves (1)
as at December 31, 2011
| Net Present Value of Future Net
Revenues Before Tax(4)
as at December 31, 2011
(Millions of Canadian dollars)
| Proved plus
| Proved plus
| Proved plus
| Proved plus
|Breagh Full Field (2)||23.6||31.4||40.4||639.4||853.0||1060.6|
Comparisons with previous evaluations of the full field development Breagh reserves are as follows:
|December 31, 2011||23.6||31.4||40.4||639.4||853.0||1060.6|
|May 31, 2011||28.2||35.3||NA||463.0||611.0||NA|
|December 31, 2010||23.6||31.6||39.0||374.3||479.8||588.5|
Comparisons with previous evaluations of the Phase 1 only Breagh reserves are as follows:
|December 31, 2011||22.9||28.7||NA||663.1||833.3||NA|
|May 31, 2011||22.1||27.6||NA||381.0||512.0||NA|
Sterling's P50 expectation of average production for the second half of 2012 is 20.0 MMscf/day of sales gas (Sterling share) rising to 37.5 MMscf/day for 2013.
The £105 million credit facility with BNP Paribas, Commonwealth Bank of Australia, GE Energy Financial Services and Société Générale (the Credit Facility), continues to be utilized to fund the Phase 1 development. The Credit Facility comprises a main tranche of £95 million and a cost overrun tranche of £10 million and, at end February 2012, the main tranche was drawn down by approximately £59 million. As a result of the recent cost increases, a small drawdown on the cost overrun tranche is likely later in 2012, which will require a matching equity contribution from the Company.
The delay to the commencement of the drilling program is likely also to lead to a delay in the point at which cash generated by Breagh can be accessed for general purposes by the Company. Under the Credit Facility, cash builds up in a restricted account with 75percent of surplus cash (after meeting capital and operating costs and debt service requirements as defined in the Credit Facility agreement) being utilized to pay down the outstanding loan balance and the remaining 25 percent not being accessible until Project Completion tests have been satisfied. These tests include the need for all project facilities to be operational and for all wells to have been drilled and flowed satisfactorily for 90 days. As the three long-reach wells are still required in the Phase 1 development, Project Completion is currently expected at end Q2 2014.
Previously the Company worked on the basis that the three long-reach wells were going to be drilled in Phase 2 and accordingly, would not require funding within Phase 1 under a revision of the Credit Facility. As a result of postponing a decision on Phase 2, there is no longer a need to revise to the Credit Facility. The three long-reach wells remain part of Phase 1 and are intended to be funded out of field cash flow, but as this will be prior to Project Completion the Company is required to hold a higher level of non-committed cash in case project cash flows are lower than expected. For cash flow statements prepared for the lending banks from March 31, 2012, the minimum group cash level required over a rolling 12 month look-ahead period is set to increase from £25 million to £35 million until Project Completion. After Project Completion, the minimum group cash level will drop to £7 million.
At end February 2012, Sterling had group cash and cash equivalents (including cash restricted under the Credit Facility but excluding cash escrowed for operational reasons) of approximately C$64 million.
RPS Energy have completed the 2011 year-end evaluation of resources for the Cladhan area in accordance with the standards contained in the COGE Handbook effective as of December 31, 2011, as provided below.
| Unrisked Contingent Resources (6)(8)(11)
as at December 31, 2011
Company Share (MMboe)
| Unrisked Prospective Resources (7)(8)(12)
as at December 31, 2011
Company Share (MMboe)
|P(90) (9)||P(50) (9)||P(10) (9)||P(90) (9)||P(50) (9)||P(10) (9)|
Blocks 210/29a and 210/30a (Sterling 39.9 percent and operator)
New 3D seismic Geostreamer data have been acquired and are currently being processed. The field development case for the northern core area by a subsea template system tied back to an FPSO or a host 3rd party platform, or a dedicated FPSO, continues to be evaluated.
Blocks 210/29c and 210/30b (Sterling 25 percent and operator)
In the blocks to the south, Sterling has contracted the semi-submersible rig Transocean 704 and drilling is projected to commence in March 2012 dependant on release from the current rig operator. This well will target prospective resources in a separate channel system where limited data exist.
Commenting on this operational and financial update, Mike Azancot, Sterling's President and CEO, said "Our first material gas production, from Breagh, is now only a matter of months away. This is a turning point for the company. However, we remain focused on maximizing the returns from Breagh and consequently wish to see the full field development achieved using an optimized incremental development solution, as should generally be the case in a phased development such as this. For Cladhan, we continue to work to a conclusion on the optimum development case and will drill further appraisal wells if this is considered beneficial. The RPS evaluation of Cladhan confirms that sufficient resources exist for a commercial development. However, we continue to evaluate the various development and appraisal options so as to maximize the ultimate returns from the Cladhan area."
|(1)||Gross before royalties|
|(2)||Gas converted to BOE at 6 Mcf = 1 BOE|
|(4)||Discounted at 10% per annum|
|(5)||Company Reserve 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 Resource 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 where the presence of hydrocarbons requires confirmation by drilling.|
|(8)||Company Resource 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 should be 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) represents 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)||Contingent resources for Cladhan are assigned to blocks 210/29a and 210/30a only.|
|(12)||Prospective resources for Cladhan are assigned to blocks 210/29a, 210/30a, 210/29c and 210/30b.|
|(13)||Estimates of reserves have been made assuming the development of each property without regard to the likely availability of funding required for that development.|
|(14)||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.|
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 the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the 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, [email protected]
David Blewden, Chief Financial Officer, Phone: 44-20-3008-8488, [email protected]
George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Mobile: (403) 519-3912, [email protected]