CALGARY, Aug. 6, 2015 /CNW/ - Sterling Resources Ltd. (TSX-V: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, announces interim operating and financial results for the quarter ended June 30, 2015. Unless otherwise noted all figures contained in this report are denominated in US dollars.
- For the second quarter of 2015 the Company recorded net income of $4.7 million ($0.01 per share) compared with net income of $6.3 million ($0.02 per share) for the first quarter of 2014.
- For the six months ended June 30, 2015 the net loss was $40.0 million ($0.11 per share) compared with net income of $174.8 million ($0.56 per share) for the six months ended June 30, 2014. This significant drop in net income is principally attributable to recognition of a deferred tax asset and a gain on disposal related to the Midia Shallow block carve-out in Romania, both during the first quarter of 2014.
- Revenue for the second quarter of 2015 was $16.7 million, a decrease of $9.1 million from the previous quarter largely due to a planned maintenance shutdown at Breagh for 20 days during June and lower natural gas prices.
- For the six months ended June 30, 2015 revenue was $42.6 million from sales of a cumulative 5.7 billion cubic feet of gas at an average realized price of 45.5 pence per therm (approximately $7.09 per thousand cubic feet) plus minor condensate sales. For the six months ended June 30, 2014 revenue was $32.7 million from sales of 3.0 billion cubic feet of natural gas at an average realized price of $8.88 per thousand cubic feet, plus minor condensate sales.
- During the second quarter of 2015 a deferred tax credit of $3.4 million was recognized compared to a credit of $19.4 million during the second quarter of 2014.
- For the second quarter of 2015 a foreign exchange gain of $13.7 million was recorded, mostly on the revaluation of the bond in the second quarter of 2015 compared to a foreign exchange loss of $0.1 million in the second quarter of 2014.
- A foreign exchange gain of $3.1 million was recorded during the first half of 2015 due to the continued weakening of the US dollar against the UK pound during the second quarter of 2015, the reverse of what occurred during the first quarter of 2015. This foreign exchange gain in the first half of 2015 arose largely because both the Bonds issued by the UK subsidiary and the Cladhan funding arrangement are denominated in US dollars while the functional currency for the UK subsidiary is the UK pound. A similar weakening of the US dollar against the UK pound during the second quarter of 2014 resulted in a gain of $1.7 million during the first half of 2014.
- Employee expense and general and administrative expenses for the six months ended June 30, 2015 totaled $2.4 million and $1.6 million respectively. Employee expense declined substantially from $3.6 million incurred during the first half of 2014 largely as a result of a UK headcount reduction of 40 percent in the first quarter of 2015. In concert with the staff reductions made in the first quarter of 2015 the Company achieved further savings through the relocation of both the Aberdeen and London offices to smaller, lower cost premises.
- Financing costs for the six months ended June 30, 2015 were $12.5 million which primarily comprised borrowing costs of $12.0 million, down from $12.2 million in the first half of 2014 as a result of the lower outstanding debt on the bond following the first amortization payment in October 2014. Interest costs of $3.4 million related to the Cladhan funding arrangement have been capitalized as borrowing costs.
- Non-recurring costs related to refinancing and strategic review activity during the first half of 2015 totalled $9.1 million, of which $5.5 million represents amortization of the first and second bond amendment fees and additional interest as a result of these amendments; $1.6 million related to severance payments; and $1.9 million related to the sale of the Romanian assets.
- Cash and cash equivalents, including restricted cash, totaled $11.8 million at June 30, 2015 compared to $17.7 million at December 31, 2014. Cash proceeds of $32.5 million, less any required tax liabilities, are due to be received from the sale of the Company's Romanian business upon completion of the transaction expected later in August 2015.
- The net working capital deficit of $63.2 million at June 30, 2015 is significantly higher than the year-end 2014 level of $30 million. The Company did not have sufficient funds to make a required $32.7 million payment to the bondholders nor to make the first monthly transfer of $5.3 million to the debt service retention account (DSRA) on April 30, 2015. The second bond amendment approved May 8, 2015 addressed these shortfalls by providing for the deferral of the amortization instalment due on April 30, 2015. However, the interest payment due on April 30 was paid in full. As a result of the deferral of these amortization payments the current portion of long-term debt relating to the bond included in the derivation of working capital stood at $72.6 million as at June 30, 2015.
Production at the Breagh field continued through the second quarter of 2015 at close to 100 percent uptime prior to entering a routine shutdown on June 2, 2015. The shutdown was completed two days ahead of schedule with continuous uninterrupted production since. Second quarter average rates, inclusive of the planned shutdown period, were 86 million standard cubic feet per day of sales gas ("MMscf/d") gross (net 25.8 MMscf/d to Sterling). Production rates since restart are running at approximately 115 MMscf/d gross sales gas (34.5MMscf/d net to Sterling). Condensate production during the period averaged 0.35 thousand barrels per day ("Mbbls/d") (0.11 Mbbls/d net to Sterling).
Preparatory work for the planned infill drilling campaign, anticipated to commence in late 2015, continued throughout the second quarter. Main activities include tendering for a drilling rig and associated services, and procurement of long lead items for the planned activities. Engineering work and planning for the onshore compression project also continued during the second quarter with expected sanction during October 2015.
Processing of the newly acquired 3D seismic continued during the second quarter with time migration information delivered in June 2015 and final migration information expected in September 2015. Phase 2 development planning continues to be on hold pending interpretation of new 3D seismic information.
Average expected full field sales gas production for 2015 for Breagh is expected to be 101 MMscf/d (30.3 MMscf/d net to Sterling), close to previous guidance. A further campaign of development drilling is expected from the Breagh Alpha platform starting in late 2015 with two to four new wells (A09-A12), of which the first two wells (A09 and A10) are currently budgeted. In addition to the new wells, the operator DEA UK and Sterling are developing a program to re-enter (possibly with a sidetrack) and hydraulically frack production well A01 and possibly sidetrack and hydraulically frack another existing production well. Final confirmation of the 2015/2016 drilling and hydraulic stimulation campaign will follow the interpretation of the 2014 3D survey, expected during the fourth quarter of 2015.
Front-end engineering and design work for onshore compression at the Teesside Gas Processing Plant ("TGPP") commenced during July 2015 and is expected to lead to a final investment decision for the project in October 2015. The compression is expected to be operationally in the second half of 2017 and could initially boost production rates by 40 to 50 percent.
Phase 2 development planning was placed on hold in mid-2014 to allow for the assessment of results from drilling activities and the resultant reservoir characterization of the southeastern areas of the field from the 2014 3D seismic acquisition. Submission of a field development plan addendum for Phase 2 is currently expected to occur during 2016.
The development cost for the remainder of Breagh Phase 1, reflecting the drilling and stimulation plans outlined above (with four new wells and two existing lower performance wells being re-entered, side-tracked and stimulated) together with onshore compression to be installed over 2015-2017, is $83 million net to the Company. This estimate is based on Sterling's view of remaining activity consistent with individual activity costings estimated by the operator from July 1, 2015 forward. On a cash basis the spending profile is expected by Sterling to be phased at $5 million during the second half of 2015, $45 million during 2016 and $35 million during 2017. Pre-sanction costs for Breagh Phase 2 are expected to amount to $2 million net to the Company in the second half of 2015.
Significant progress was made at Cladhan during the second quarter with the resumption of the subsea installation campaign and continuation of Tern topsides and conductor modification work. Subsea work included pipeline burial, pressure testing and final tie-in work at the Cladhan field. Shutdown of the Tern platform commenced in mid-June to enable final tie-in and process modification work.
During July completion of the Tern shutdown and work on the final tie-in of both topsides and subsea systems will be completed prior to commissioning and production start-up at the end of the third quarter of 2015.
Technical evaluation continues on block 21/30f (Sterling 20 percent, non-operator) containing the Belinda and Evelyn discoveries with plans for drilling or development to be agreed with the Oil & Gas Authority (the new UK regulator) by November 2015, otherwise the licence would need to be relinquished. There is a firm well commitment on the licence for which Sterling will be largely carried on the cost.
On blocks 42/2a, 42/3a, 42/4, 42/5 & 36/30 (Sterling 100 percent), which are located approximately 25 kilometres north of the Breagh gas field and contain the Darach and Ossian prospects, the Company is continuing a farm-down process for its interest during 2015 ahead of drilling a commitment well. An extension to the licence expiry date to December 2018 has been granted, by which time the commitment well needs to be drilled. On blocks 49/18b & 19b (Sterling 100 percent) which contain the Nia and Niadar prospects, a licence extension to December 2017 has been granted on the understanding that a 50 per cent relinquishment be submitted at the end of the original term in January 2016.
In March 2015 the Company entered into an agreement to sell its entire Romanian business to an affiliate of the Carlyle Group. This sale is now expected to close in August 2015 with all Romanian licence commitments transferred to the purchaser. The Company's interest in block 27 Muridava was sold to Petroceltic Resources PLC during June of 2015. The Muridava sale was contemplated in the earlier sale agreement and the consideration for transaction with the Carlyle Group is unaffected. Consideration from the Muridava sale was not material and the buyer will accept all of the outstanding obligations relating to the licence.
During June of 2014, acquisition of 500 square kilometres of 3D seismic over the F17 and F18 blocks (Sterling 35 percent, operator) was completed. Processing is expected to be completed during September 2015. Data processing and interpretation is expected to be completed by the end of 2015. The seismic was acquired to improve resolution of reservoir distribution and reduce structural uncertainty, to assist in evaluating new exploration potential in the area and to aid in the evaluation of development options such as a tieback to a potential Wintershall oil hub. Licence extensions have been granted to January 2017 by the Ministry of Economic Affairs.
For the E03 and F01 blocks in the Netherlands (Sterling 30 percent, non-operator), the 3D seismic survey acquired during 2012 has been processed and is currently being evaluated. A one-year extension has been granted and by December 2015 the partnership will be required to make a drilling decision or relinquish the licence.
In France, abandonment of the Grenade-3 well and recovery of the well site is planned for the fourth quarter of 2015, for minimal cost. Following these works, the extension application for the St. Laurent licence (Sterling 33.42 percent, non-operator) containing the Grenade discovery and the initial application for the Donzacq licence (Sterling 33.42 percent, non-operator) are expected to be withdrawn.
At the end of October 2015, the Company is expected to have a cash deficit of approximately $20 million, after (i) completion of Romanian Sale during August, (ii) paying the outstanding amortization instalment from April 30, 2015 (with a 7.5 percent premium and accumulated interest) of $24.8 million upon closing of the Romanian Sale, (iii) making an amortization instalment (with a 7.5 percent premium) and interest payment of $33.3 million on October 30, 2015, and (iv) providing for $10 million of minimum UK unrestricted cash from October 31, 2015.
"Sterling continues to work towards a sustainable solution to its current financial challenges and with a stable financial footing the Company will become a more attractive candidate for corporate merger or sale, should this deliver a superior return to shareholders," stated Jake Ulrich, Sterling's Chief Executive Officer. "In time, if a corporate merger or sale is not consummated, and the Company's finances have stabilized, Sterling would consider acquisitions of additional UK producing assets on a value-accretive basis in order to diversify sources of production, to boost medium term cash flow, and to optimize the Company's tax attributes," added Mr. Ulrich.
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 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 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 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 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, [email protected]; David Blewden, Chief Financial Officer, Phone: +1 (403) 237-9256, [email protected]; George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Mobile: (403) 519-3912, [email protected]