CALGARY, Nov. 22, 2016 /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 and the Netherlands, announces interim operating and financial results for the quarter ended September 30, 2016. Unless otherwise noted, all figures contained in this report are denominated in United States dollars.
FINANCIAL AND OPERATING HIGHLIGHTS
- Third quarter 2016 funds flow from operations were $0.6 million compared to the $3.1 million reported in the third quarter of 2015.
- Revenue for the third quarter of 2016 was $11.7 million, down slightly from the $12.3 million reported in the second quarter of 2016 and down from the $19.3 million reported in the third quarter of 2015.
- For the third quarter of 2016, the Company recorded a net loss of $6.0 million ($0.04 per share post share consolidation), compared with a net loss of $10.8 million ($0.03 per share) for the third quarter of 2015.
- For the nine months ended September 30, 2016, the net loss was $32.9 million ($0.11 per share post share consolidation) compared with a net loss of $50.4 million ($0.13 per share) for the nine months ended September 30, 2015.
- For the nine months ended September 30, 2016, revenue from UK Breagh gas production sales were $26.7 million, which comprised of approximately 6.2 billion cubic feet ("Bcf") at an average gas price of 30.8 pence per therm ($4.31 per thousand cubic feet) and 2,354 tonnes of condensate (17,307 barrels) at an average price of $305 per tonne. Comparably for the nine months ended September 30, 2015, UK Breagh revenues of $60.6 million came from sales of gas production of approximately 8.8 Bcf at an average gas price of 43.8 pence per therm ($6.83 per thousand cubic feet) and 3,600 tonnes of condensate (29,071 barrels) at an average price of $425 per tonne.
- Employee expense and general and administration expenses for the nine months ended September 30, 2016 totaled $2.5 million and $1.6 million, respectively. Employee expenses declined from the $3.3 million incurred during the first nine months of 2015 as a result of lower non-cash share based-compensation charges and staff reductions which incurred in the first quarter of 2015. General and administration costs decreased $0.5 million compared to the same period in 2015 due to cost saving initiatives partly offset by lower recoveries and legal and professional advisor costs set against the recapitalization.
- Financing costs for the nine months ended September 30, 2016, were $21.2 million consisting primarily of borrowing costs of $12.2 million on the Bond. In the nine months ended September 30, 2015, interest expense of $5.8 million relating to the Cladhan funding arrangements was capitalized as borrowing costs until the asset entered into production in mid-December 2015, when capitalization ceased and the interest was expensed. In the nine months ended September 30, 2016, $8.2 million of Cladhan funding arrangement interest was expensed.
- Non-recurring costs related to recapitalization strategic review for the three months ended September 30, 2016 totaled $3.2 million. For the nine months ended September 30, 2016, $8.4 million of non-recurring costs related to the recapitalization and strategic review have been expensed.
- Cash and cash equivalents, including restricted cash, totaled $7.8 million at September 30, 2016 compared to $12.2 million at December 31, 2015.
- Net working capital, defined as current assets less current liabilities, excluding the Cladhan funding arrangements as at September 30, 2016 was $9.9 million. This surplus is as a result of the completion of the recapitalization, which previously had been treated as a current liability. Both trade and other receivable and payables are at lower levels when compared to December 31, 2015, due to lower activity.
- Previously, the Company reported the completion of a major recapitalization of the Company and its subsidiaries, which resulted in a reduction in debt to more appropriate levels and access to a new Super Senior Revolving Credit Facility ("SSRCF"). As of September 30, 2016, the balance of the SSRCF was zero and from the closing of the recapitalization on May 30, 2016 through to the date of this report the SSRCF has not been utilized.
During the quarter, a number of managerial and operational changes occurred in an effort to reduce ongoing costs and to maximize the cash flow from the UK Breagh gas field. Of these changes, cost reductions were realized due to the closing of both the Calgary and London offices and a further right-sizing of the organization. The Company will continue to pursue cost saving initiatives, which in turn will deliver cost savings across the Company.
On September 8, 2016, the Company announced that it had entered into a gas sales agreement with British Gas Trading Limited ("BGT"), a subsidiary of Centrica plc. The agreement provides for Sterling's share of Breagh nominated gas volumes to be sold on a day ahead basis to the UK reference price at the National Balancing Point. Under the contract, Sterling delivers the Company's share of Breagh gas to BGT on a day ahead basis, and BGT must take and pay for this volume. The gas sales agreement incorporates arrangements for payment to Sterling for over-deliveries, and recovery of incremental costs incurred by BGT for under-deliveries, on normal market terms. The agreement is valid for a minimum two-year period with gas made available to BGT commencing October 1, 2016. The agreement replaces the gas trading and services agreement with Vitol SA which expired on October 1, 2016. Sterling is paid by BGT in the month following production.
For the nine months ended September 30, 2016, production averaged 73 million standard cubic feet per day gross ("MMscf/d") (22 MMscf/d net to Sterling). The third quarter average sales gas rates were 70 MMscf/d gross, net 21 MMscf/d. Gross condensate sales for the three months ended September 30, 2016, averaged 223 barrels per day ("bbl/d"), net 67 bbl/d to Sterling.
2016 full year sales gas production forecast of 71 MMscf/d for 100 percent of the field (21.3 MMscf/d net to Sterling) remains as previously reported, due to strong performance of the field and low production decline. This forecast figure incorporates a production uptime factor of 92 percent for the full year 2016.
The infill development drilling program from the Breagh Alpha platform remains on target and is expected to commence during the second quarter of 2017, with activity for the campaign to ramp up during fourth quarter 2016, ahead of this start date. The program comprises of drilling two new wells (A09 and A10) and the re-entry and hydraulic stimulation of one existing well. Two further wells (A11 and A12), and a further hydraulic stimulation of an existing well could follow as part of the same drilling campaign. In addition, a limited scope intervention on well A04 was completed in mid-November in an effort to restart this non-producing well. Results are currently being evaluated.
The development cost for the remainder of Breagh Phase 1, reflecting the drilling and stimulation plans outlined above (with two new wells and one existing lower performance well to be re-entered, side-tracked and stimulated) together with the onshore compression project to be installed over 2017-2018, is anticipated to be approximately $40 million net to the Company from October 1, 2016. On a cash basis, this is expected to be phased $2 million in the fourth quarter of 2016, $23 million in 2017, $13 million in 2018 and $1 million in 2019. Pre-sanction costs for Breagh Phase 2 are expected to amount to less than $1 million net to the Company in 2017.
At this time, Phase 2 development planning remains on hold to prioritise the infill drilling campaign from the Breagh A platform. It is expected that reservoir data from the infill drilling campaign coupled with the updated 3D seismic interpretation work and new models will lead to restart of Phase 2 planning in the latter half of 2017.
First production from the Cladhan development was achieved in mid-December 2015, from production wells P1 & P2. During third quarter 2016, Cladhan production averaged 5,950 bbl/d gross (119 bbl/d net to Sterling).
Production well P2 flow rate declined significantly during the second quarter and has remained shut in since mid-July. Full year average production is forecast to be 6,620 bbl/d gross (132 bbl/d net to Sterling) for 2016.
Sterling continues to hold a 35 percent interest in Blocks 17A and F18 (Jurassic and Early Cretaceous horizons) containing three small oil discoveries. Seismic processing was completed during September 2015. Seismic inversion work commenced in July 2016 and seismic mapping of key reservoirs continues. License extensions were granted to January 2021.
Letters requesting the withdrawals of 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) have been submitted. Formal approval of the works on the abandonment and site restoration of the Grenade-3 well, conducted in the fourth quarter of 2015, are expected by the end of 2016.
"The Company has completed the third quarter with a positive funds flow from operations having concluded a number of staff reductions and also enduring relatively low gas prices during the quarter. Commented John Rapach, Chief Executive and Operating Officer. "We look forward to what will be a very active year on the Breagh Field in 2017 with the drilling and compression projects."
NON-GAAP FINANCIAL MEASURES
This news release contains references to certain financial measures used by the Company that do not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other entities. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to other measures of financial performance calculated in accordance with GAAP. The non-GAAP measures and their manner of reconciliation to GAAP financial measures are discussed below. These non-GAAP measures provide additional information that management believes is meaningful in describing the Company's operational performance, liquidity and capacity to fund capital expenditures and other activities. The specific rationale for, and incremental information associated with, each non-GAAP measure is discussed below.
Funds flow from operations, as used in this news release, is defined as net income (loss) (a GAAP financial measure) less adjustments for non-cash items (see "Condensed consolidated statement of cash flows" in the Company's unaudited condensed interim consolidated financial statements for the three and nine month period ending September 30, 2016 and 2015) and is used to analyze operating performance.
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 particular, this news release contains forward-looking statements with respect to anticipated 2016 full year gas sales from Breagh and full year production from Cladhan, Sterling's infill development drilling program from the Breagh Alpha platform for the remainder of 2016 and 2017, including the potential for incremental wells A11 and A12 and a further hydraulic stimulation of an existing well, the anticipated development cost of Sterling's infill development program and the timing thereof for the period 2016 to 2019, anticipated pre-sanction costs to Sterling of Breagh Phase 2, the expected implications of the reservoir data from Sterling's infill drilling campaign and updated 3D seismic interpretation and new models on the timing of a restart to planning Breagh Phase 2 and expectations in relation to formal approval of the works on the abandonment and site restoration of the Grenade-3 well.
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.
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
Sterling has filed with Canadian securities regulatory authorities its unaudited financial statements for the three and nine months ended September 30, 2016 and the accompanying MD&A. These filings are available on www.sterling-resources.com and under Sterling's SEDAR profile on www.sedar.com.
Sterling Resources Ltd. is a Canadian-listed international oil and gas company whose registered office is in Calgary, Alberta with assets in the United Kingdom and the Netherlands. The shares are listed and posted for trading on the TSX Venture Exchange under the symbol "SLG".
SOURCE Sterling Resources Ltd.
For further information: John Rapach, Chief Executive Officer, Phone: +44 1224 806617, [email protected]; Christine Shinnie, Chief Financial Officer, Phone: +44 1224 806636, [email protected]; Tracy Lessard, Corporate Secretary, Phone: (403) 237-9256, [email protected]; www.sterling-resources.com