CALGARY, July 13, 2012 /CNW/ - Sterling Resources Ltd. (TSXV: SLG) ("Sterling" or "the Company") is pleased to provide an update regarding the anticipated commencement of first production and the latest development cost for the Breagh gas field; news of activities in Romania; and the Company's financial plans over the next 12 months.
The review of the remaining work required at the Teesside Gas Processing Plant ("TGPP"), where Breagh gas is to be processed, is still ongoing. The contractual date for mechanical completion of the TGPP works has not been achieved. This is attributed to problems with repair of equipment damaged during shipment and the management of design of the works. Preliminary estimates of costs and schedule to production start-up show a slight further increase in costs above the range indicated in our news release of May 21, 2012 and production start-up is expected towards the end of the fourth quarter of 2012.
The estimate of Phase 1 development costs has now risen to the range of £600 to £610 million (100 percent), an increase of 6 to 8 percent over the cost estimate of £566 million provided in the Company's 2011 annual report. This increase also includes costs relating to activities not connected to the TGPP work, such as completion of the onshore pipeline, completion of additional rock-dumping required on the offshore section of the pipelines and an estimate of increased drilling costs for future wells based on current rig rates. Sterling's share of the cost increase amounts to £10 to £13 million. As a result of the production delay, ongoing drilling and other costs from September (amounting to approximately £2 million per month) will now not be funded out of field cash flow.
Early drilling results on the Breagh Alpha platform have been positive with the first wells, A-01 and A-02 (side-tracks of the original 42/13-3 and 42/13-5Z wells), both encountering a materially thicker than expected gas-bearing reservoir section. These first two wells will be flow-tested within the next month, following which the first new well will be drilled from the platform. These three wells are expected to be on-stream at first gas.
Drilling of the Ioana gas prospect in the Midia Block is now due to commence in September 2012 which will be immediately followed by the drilling of the Eugenia oil prospect in the more northerly Pelican Block in the fourth quarter.
Sterling's wholly owned subsidiary in Romania, Midia Resources SRL ("Midia"), has obtained approval from the National Agency for Mineral Resources for an interest in the 1,000 square kilometre Romanian Black Sea concession Block 25 (Luceafarul). Midia will obtain a 50 percent interest and will be operator. The current concession holder Petro Ventures Europe BV will then hold the remaining 50 percent interest.
Block 25 was one of a number of 10th Round offshore concessions awarded in June 2010 and subsequently ratified by the government in October 2011. This shallow water block, to the west of and adjacent to Sterling's Midia Block, contains an existing gas discovery and multiple exploration plays, has existing 2D seismic coverage and has been assessed by independent reserves evaluator RPS Energy in a report dated and effective July 4, 2012 to have 104 billion cubic feet (Bcf) of unrisked full field 2C (1) Contingent Resources (2)(3), of which the Company's working interest share will be 52 Bcf. The Concession Agreement has an initial three year exploration period with a commitment to undertake seismic acquisition and drill one well. The exploration period can then be extended for an additional three year period. Seismic work is currently progressing through the permitting process.
The Company was pleased to note the commitment given by the Romanian government to liberalizing the gas sector in Romania in a letter to the International Monetary Fund ("IMF") dated June 8, 2012, which is available on the IMF's website. (http://www.imf.org/external/np/loi/2012/rou/060812.pdf)
The letter states that gas prices will be liberalized starting from the end of this year in order to converge to average European prices by the end of 2014 for the non-household sector (industrial), or the end of 2015 if a large gap remains between European gas prices and import prices, and by the end of 2018 for the household sector. As the non-household sector has represented approximately 70 to 75 percent of the total market in recent years, this schedule is very positive for the Ana and Doina gas developments, which are expected to come on stream in 2015/2016, as well as for the valuation of Sterling's extensive exploration acreage.
Prior to first cash flow from the Breagh field, the Company intends to fund the remaining development costs through full utilization of the £10 million cost overrun tranche of the reserves-based loan for the Phase 1 development of the Breagh field (the "Credit Facility"), matched by £10 million of equity cash.
The Company has engaged financial advisers and launched divestment processes for the sale of a significant part of its 65 percent equity interest in the Midia and Pelican licence blocks offshore Romania and up to all of its remaining 26.4 percent interest in the Cladhan field in the UK. Contingent upon receiving suitable offers, it is the Company's intention to sign definitive sale agreements around the end of September and to close as soon as practicable thereafter. The two high impact wells and seismic activities offshore Romania can be undertaken without needing to wait for proceeds to be received from these divestment processes.
The Company's latest Cash Flow Statement submitted to the lending banks at the end of June as a requirement of the Credit Facility shows a group cash balance in excess of £20 million for the next 12 months, as required. The Cash Flow Statement, which is prepared on the basis of management's expectation of future expenditures and income, assumes that the remaining net cost of drilling the two offshore Romania wells later this summer is ultimately carried by the successful purchaser and that a notional amount of cash proceeds is received from the divestment processes described above in the fourth quarter of 2012, in order to satisfy the cash level test. A small level of proceeds from either divestment process would be adequate to achieve the required minimum cash level and to fund any further cost increases in the costs of exploration or development activities during the period, should this be necessary, including any further potential costs on Breagh.
In the first quarter of 2013, the Company intends to complete a refinancing of the Credit Facility to gain access to cash flows from the Breagh project during 2013, to remove certain other loan terms and to include a tranche for the development of Breagh Phase 2 and (if appropriate) Cladhan.
Mike Azancot, Sterling's President and CEO, commented, "An updated estimation of the Breagh project cost overruns has been made with first gas date still planned in the fourth quarter 2012. As a result of our careful cash management and the recent launch of asset divestment processes, we are able to satisfy our liquidity requirements under the terms of our Credit Facility. In Romania, the news of the gas liberalization program allows better definition for the evaluation of our projects. We intend to reduce our high current equity interest to one that is more manageable going into next year's development program and a significant and exciting exploration campaign on our highly prospective blocks. Both the offshore Romania and Cladhan divestment processes are for material interests in attractive assets with upside potential which should be of interest to a wide range of companies. We expect to complete these sales before the end of the year which, together with a refinancing of the Breagh Credit Facility, will enable us to undertake a material step-up in our exploration, appraisal and development activity internationally in 2013."
|(1)||The 2C is considered to be the best estimate of the quantity that, if discovered, 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.|
|(2)||Contingent Resources are those quantities of petroleum estimated at 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 Contingent Resource volume shown represents a probabilistic total within the block area. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Specific contingencies preventing the classification of the resources as reserves are further definition of resource volumes through further appraisal drilling, regulatory approvals and sanction, and selection of a specific field development concept, including the most viable crude offtake delivery routing and oil sales contracts. There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources.|
|(3)||As with all oil and gas fields at this early stage of appraisal, there are significant positive and negative factors which may impact the resource volumes for Block 25. There is a significant range of uncertainty associated with the resource volumes due to variations in geological properties, reservoir petrophysical properties and potential well flow rates in the undrilled portions of the reservoir structure.|
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 purposes 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]