CALGARY, April 17, 2015 /CNW/ - Sterling Resources Ltd.
(TSXV: SLG) ("Sterling" or the "Company"), an international oil and
gas company with exploration, development and production assets in
the United Kingdom, Romania, and the
Netherlands, is pleased to announce operating and financial
results for the year ended December 31,
2014. Unless otherwise noted all figures contained in this
release are denominated in US dollars.
Financial Summary
Net income for the year ended December
31, 2014 was $111.0 million
($0.33 per common share) compared to
a net loss of $31.2 million
($0.11 per common share) for the year
ended December 31, 2013. The
transformation from net loss to net income is largely attributable
to (1) the recognition of a deferred tax asset, (2) income from
production from the Breagh gas field and (3) a gain on disposal
relating to a carve-out transaction in Romania. The net
income is however reduced by impairment costs principally relating
to Romania and Cladhan.
- Operating netback of $57.3
million came from $80.3
million of revenue less $8.8
million of third party entitlement and $14.1 million of operating expenses ($9.37 per barrel of oil equivalent).
- Revenue from the Breagh gas field during 2014 totaled
$80.3 million, on sales gas
production of approximately 8.9 billion cubic feet at an average
realized price of 50.8 pence per
therm ($8.19 per thousand cubic
feet), sales of 3,260 tonnes of condensate (27,225 barrels) at an
average price of £425 ($701) per
tonne, and other revenues including receipts from natural gas
financial derivative instruments of $5.2
million. Material production from Breagh commenced in
October 2013, and revenue for 2013
totaled $3.5 million on sales gas
production 0.9 billion cubic feet at an average price of
$10.27 per thousand cubic
feet.
- The deferred tax asset has been increased to $194.0 million from the $144.5 million initially recognized in the first
quarter of 2014 mainly due to tax losses in the subsequent nine
month period ended December 31, 2014
and further allowances for ring fence expenditure supplement
partly offset by foreign exchange movements.
- During January 2014 the Company
completed a sale and purchase agreement with ExxonMobil and OMV
Petrom representing the sale of a 65 percent interest in a
sub-divided portion of block 15 Midia in the Romanian Black Sea as
originally announced in October 2012. This carve-out
transaction resulted in a gain of $27.3
million, partially offset by $4.3
million of taxes paid.
- Non-cash items in the Income statement included charges of
$31.4 million on depletion,
depreciation and amortization, and $80.6
million of impairment costs. $22.8
million of this impairment related to Cladhan as a result of
lower commodity prices and capital overruns, with the balance as a
result of exiting or reducing our exposure to exploration,
appraisal and early development stage assets that cannot easily be
financed.
- Financing costs during 2014 totaled $26.2 million primarily attributable to borrowing
costs of $25.1 million on the bond
expensed from the date Breagh production commenced in October 2013, and $0.9
million of interest expense related to the Cladhan funding
arrangement which has been capitalized as borrowing costs.
The remaining financing costs of $1.1
million include accretion of the discount on decommissioning
obligations and have increased in the period due to greater
decommissioning obligations on the Breagh and Cladhan
developments.
- Expenditure on assets consisted of:
- $55.9 million of additions to
property, plant and equipment, relating to Breagh and Cladhan, the
latter through the Cladhan funding arrangements.
- $35.8 million of additions to
exploration and evaluation assets, mostly relating to the Crosgan
well in the UK and an exploration well and related work in
Romania of which $7.8 million was written off as dry-hole expense
on the block 27 Muridava licence in Romania.
- $5.5 million of pre-licence and
other exploration costs were expensed during 2014. Of the
$5.5 million total, $2.5 million was attributable to licences in the
UK, $1.1 million attributable to
Romania, and $1.9 million attributable to the Netherlands and other international
ventures.
- For the year ended December 31,
2014 the Company recorded a foreign exchange loss of
$11.3 million due to the
strengthening of the US dollar during the third and fourth quarters
of 2014, which followed two quarters of a weak US dollar relative
to the UK pound. The senior secured bond issued by the UK
subsidiary is denominated in US dollars and the UK pound is
Sterling's functional currency.
Cash and cash equivalents were $17.7
million at December 31, 2014
compared to $34.7 million at year-end
2013.
As at December 31, 2014 the
Company had a net working capital deficit of $30 million compared to a net working capital
surplus of $2.2 million as at
December 31, 2013. The Company does
not expect to have sufficient funds to make a required $32.7 million payment to bondholders and to make
the first monthly transfer (following the temporary suspension
agreed in the December 2014 bond
amendments) of $5.3 million to the
DSRA on April 30, 2015. The estimated
shortfall is approximately $27
million including the requirement to maintain a minimum
$10 million UK liquidity level.
Accordingly the Company is currently considering a range of
financing options including seeking a further set of bond
amendments. At the end of the first quarter of 2015, the
Company had cash and cash equivalents of $17.7 million (and negligible restricted
cash).
Cash proceeds of $32.5 million,
less any tax liabilities, from the sale of the Company's Romanian
business (the "Romanian Sale") are expected to be received upon
completion of the transaction around the end of June of 2015 and
thus will not be available to assist in making the payment to
bondholders and in funding the monthly DSRA transfer on
April 30, 2015. To address the
Company's longer term financing needs, the Company is continuing
discussions with a number of potential purchasers for the sale of
10-15 percent interest in the UK Breagh gas field and progressing a
potential refinancing of the bond and/or incremental
financings. In addition, a number of potential corporate
transactions are being discussed.
Operational Summary
Performance at the UKNS Breagh gas field continues to improve,
with first quarter 2015 total field sales gas volumes of 11.1
billion cubic feet (Bcf) (3.3 Bcf net to Sterling) equating to an
average rate of 123 million standard cubic feet per day ("MMscf/d")
(36.9 MMscf/d net to Sterling). Average production uptime over the
year to date was 96 percent. New 3D seismic has been acquired
across the Breagh field area for use in ongoing development of the
field including the remaining Phase 1 drilling program and
potential Phase 2 development planning.
During 2015 we intend to move forward with a number of
initiatives in the UK North Sea including: (1) moving forward
with Breagh Phase 2 planning and optimization reflecting the
drilling, hydraulic stimulation and production history of Phase 1;
(2) continued development of the Cladhan field with initial
production expected to begin in September
2015; (3) farm-out of the UK licences containing the Niadar
and Ossian/Darach prospects, and (4) drill an appraisal well, for
which nearly all of the costs will be carried under a farm-out
agreement, on either the Evelyn or Belinda oil
discoveries.
In the Netherlands,
acquisition of 500km2 of 3D seismic data over the
F17a and F18 blocks (Sterling 35 percent, operator) was completed
in June of 2014 with processing and interpretation expected to be
completed by the middle of 2015. The seismic acquired is over
the oil discoveries and prospects in the Jurassic and Early
Cretaceous horizons, in order to improve reservoir
understanding and assist in evaluating new exploration potential
and existing development options. The 3D seismic survey acquired
during 2012 for the E03 and F01 blocks (Sterling operator with 30
percent) is currently being evaluated.
"Despite a very challenging macroeconomic environment we
continue to have faith in the long term potential of the North Sea
assets, " stated Sterling's Chief Executive Officer Jake Ulrich. "We were pleased to announce the
sale of the Romanian business in March and expect the transaction
to close around the end of June. Discussions continue with
Sterling's bondholders to address the pending April 30, 2015 payment and we continue to discuss
the sale of a portion of Sterling's 30 percent interest in the
Breagh field with a number of parties. Longer term, we intend
to close the value gap between the current share price and a fair
valuation through a focus on UK production and tax efficiency,
backed by rigorous capital allocation," added Mr.
Ulrich.
Reserves and Resources Summary
Sterling announced the filing of its annual Reserves disclosure
pursuant to National Instrument 51-101 ("NI 51-101") on
March 27, 2015. An update of
the Company's Contingent and Prospective Resources has since been
completed by the Company's Reserves evaluator RPS Energy for each
of the Sterling Resource assets and presented below with the
Company's 2014 Reserves statement.
Contingent 2C Resources have increased by 7 percent due to the
reclassification of reserves to Contingent Resources for the Breagh
Field Phase 2 development. Best Estimate (P50) Prospective
Resources have decreased by 18 percent due to several factors: a
decrease due to the Muridava dry-hole, downgrade of
the Oligocene fan in Block 25, and increases from new
prospects identified in the Midia Block offset by a smaller but
better definition of Ioana downdip (Zara) prospect in Midia Block
15. These changes in Block 15 and 25 arise from the
interpretation of the fast track volume of the 3D seismic data
acquired during late 2013 and early 2014.
|
Company Share
Gross(2) and Net Oil
and Gas Reserves
as at December 31, 2014
(MMboe)(4)
|
|
Summary of Net
Present Value
of Future Net Revenue
Before Income Tax(7)
as at December 31, 2014
($million)
|
|
Proved
|
Proved
+
Probable
|
Proved
+
Probable
+
Possible(3)
|
|
Proved
|
Proved
+
Probable
|
Proved
+
Probable
+
Possible(3)
|
Breagh (5)
|
30.0%
|
18.0
|
22.7
|
30.2
|
|
377
|
496
|
675
|
Cladhan (6)
|
13.8%(13)
|
0.1
|
0.5
|
0.8
|
|
4
|
13
|
30
|
Company
Total (8,9)
|
18.1
|
23.1
|
31.0
|
|
381
|
509
|
705
|
Company Resources Summary (12,14)
|
Unrisked
Contingent (10)(12)
Resources
Company
Share
|
|
Unrisked
Prospective (11)(12)
Resources
Company
Share
|
|
1C
|
2C
|
3C
|
|
Low
|
Best
Estimate
|
High
|
|
|
P(90)
|
P(50)
|
P(10)
|
|
P(90)
|
P(50)
|
P(10)
|
Gas
|
Bscf
|
314
|
416
|
525
|
|
1,647
|
2,279
|
3,179
|
Oil
|
MMbbls
|
20
|
25
|
33
|
|
24
|
52
|
147
|
Company Resources Change Summary from December 31, 2013(12,14)
|
Unrisked
Contingent (10)(12)
Resources
Company
Share
|
|
Unrisked
Prospective (11)(12)
Resources
Company
Share
|
|
1C
|
2C
|
3C
|
|
Low
|
Best
Estimate
|
High
|
|
|
P(90)
|
P(50)
|
P(10)
|
|
P(90)
|
P(50)
|
P(10)
|
Gas
|
Bscf
|
20.0
|
26.0
|
41.0
|
|
(292.0)
|
(490.0)
|
(866.0)
|
Oil
|
MMbbls
|
(0.1)
|
(0.1)
|
(0.1)
|
|
0.1
|
0.2
|
-
|
Notes:
1
|
Estimates of Reserves
and Future Net Revenue have been made assuming the development of
each property in respect of which the estimate is made will occur,
without regard to the likely availability to the Company of funding
required for that development. Totals may differ due to
rounding.
|
|
|
2
|
Gross before
royalties.
|
|
|
3
|
Possible Reserves are
those additional reserves that are less certain to be recovered
than Probable Reserves. There is a 10 percent probability
that the quantities actually recovered will equal or exceed the sum
of Proved plus Probable plus Possible Reserves. In this instance
the gross values are the same as the net values because the royalty
is zero.
|
|
|
4
|
MMboes may be
misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf : 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
|
|
|
5
|
Breagh Reserves are
predominantly gas.
|
|
|
6
|
Oil
|
|
|
7
|
Discounted at 10
percent per annum.
|
|
|
8
|
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 under a specific set of economic conditions:
- At least a 90
percent probability that the quantities actually recovered will
equal or exceed the estimated Proved reserves (1P);
- At least a 50
percent probability that the quantities actually recovered will
equal or exceed the sum of the estimated Proved plus Probable
reserves (2P); and
- At least a 10
percent probability that the quantities actually recovered will
equal or exceed the sum of the estimated Proved plus Probable plus
Possible reserves (3P).
|
|
|
9
|
The estimates of
Reserves and Future Net Revenue for individual properties may not
reflect the same confidence level as estimates of Reserves and
Future Net Revenue for all properties, due to the effects of
aggregation.
|
|
|
10
|
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. 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. There is no certainty that it will be
commercially viable to produce any portion of the
resources.
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) represent the low and
high estimates respectively.
|
|
|
11
|
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. Prospective
resources have both an associated chance of discovery and a chance
of development. There is no certainty that any portion of the
resources will be discovered. If discovered, there is no
certainty that it will be commercially viable to produce any
portion of the resources.
In relation to the
relative uncertainty of recoverability of resources, a Best
Estimate Prospective resources quantity is considered to be the
best estimate of the quantity that will actually be
recovered. It is equally likely that the actual remaining
quantities recovered will be greater or less than the best
estimate. There should be at least a 50 percent probability
that the quantities actually recovered will equal or exceed the
Best Estimate. Similarly, the Low Estimate or P(90) and High
Estimate or P(10) represent the low and high estimates
respectively.
|
|
|
12
|
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.
|
|
|
13
|
The Company's current
equity interest is 2.0 percent, but this is expected to revert to
13.8 percent in 2018 upon pay-out of a repayable carry arrangement
with TAQA.
|
|
|
14
|
Contingent Resources
and Prospective Resources volumes are stated in terms of sales
quantity volumes.
|
The Company's hydrocarbon reserves and resources were
independently evaluated by RPS effective December 31, 2014 in accordance with the Canadian
Oil and Gas Evaluation Handbook ("COGEH") reserves definitions and
evaluation practices and procedures, as specified by NI
51-101. There is no certainty that it will be commercially
viable to produce any portion of the Reserves. The evaluation
uses the RPS forecast prices and costs as at December 31, 2014.
Complete details regarding Sterling's reserves for the year
ended December 31, 2014 and in a
format specified by NI 51-101 can be found on SEDAR at
www.sedar.com or on the Company's website
www.sterling-resources.com
Further details regarding Sterling's Contingent and Prospective
Resources for the year ended December 31,
2014 are provided in the Company's Annual Information Form
(AIF) which can be found on SEDAR at www.sedar.com or on the
Company's website www.sterling-resources.com
Executive summaries of the reserves and resources reports for
the Breagh and Cladhan fields in the UK North Sea as at
December 31, 2014 have also been
filed on SEDAR and made available on the Company's website
www.sterling-resources.com. The executive summaries were
prepared by the Company's independent reserves evaluator RPS Energy
and are dated April 14, 2015. The
reserves, resource description and associated valuations in these
executive summaries are consistent with the Statement of Reserves
Data and Other Oil and Gas Information (form NI 51-101F1) filed on
March 27, 2015 with an effective date
of December 31, 2014. Contingent
Resources described in these reports form part of the Company's
portfolio as described within the AIF.
Adjusted Breagh Production Profiles and Capex Phasing
Since the date of preparation of the cash flow tables within the
RPS End-2014 Breagh Executive Summary Report, the operator RWE Dea
has provided further details of expected well timings and hydraulic
stimulation program design. Wells are expected to be drilled
3 to 4 months later and batch hydraulic stimulation of wells is
assumed (on two new wells and one existing well in 2016, and on two
new wells and one existing well in 2017). Sterling's
management has remodeled the Proved plus Probable (P50) production
profiles and associated capital expenditures ("capex") phasing for
Phase 1 of the development to reflect the operator's guidance,
without initially changing the RPS reserves estimate or total capex
figures. Note that the annual average production rates assume
a 3-week shutdown in June 2015 and
average field uptime of 92 percent for the remainder of the
year. For the last three quarters of 2015, we expect average
production of 28.9 MMscf/d net to Sterling.
In addition, Sterling has adjusted the capex phasing to be on a
cash basis, rather than an accruals basis. This has the
additional impact of increasing overall capex by $1 million (from $126
million to $127 million, net to Sterling, from the start of
2015), since it now captures some cash payments made in the first
quarter of 2015 resulting from 2014 activities. The revised
production and capex profiles for the next five years for Breagh
Phase 1 (including $3 million of
pre-sanction expenditures on Phase 2 in 2015) are as follows:
|
Capital
expenditures ($million)
|
Net Production
(MMscf/d)(1)
|
Year
|
RPS
End
2014(2)
|
Sterling
adjusted
|
RPS
End
2014(2)
|
Sterling
adjusted
|
2015
|
52
|
10
|
32.2
|
30.8
|
2016
|
65
|
69
|
44.6
|
28.4
|
2017
|
9
|
48
|
47.3
|
49.6
|
2018
|
|
|
38.9
|
52.3
|
2019
|
|
|
29.0
|
39.1
|
Total
|
126
|
127
|
|
|
Notes:
1
|
Production is Proved
plus Probable (P50) sales gas. In addition, condensate is
expected to be produced at a ratio of 3.3 barrels per million cubic
feet of gas.
|
|
|
2
|
RPS End-2014 Breagh
Executive Summary Report; assumes 12 wells and 2 sidetracks plus
hydraulic stimulations of existing wells
|
Future G&A and E&A Costs
The Company has made decisive steps to reduce its future general
and administrative costs and employee expense costs (in aggregate,
"G&A Costs"), to respond to the current low commodity price
environment and its challenges meeting required bondholder
payments. This has been achieved by a reduction of UK staff
numbers by 30 percent achieved in the first quarter of 2015, office
moves in London (completed) and
Aberdeen (later in April 2015); in addition the planned Romanian
Sale (which includes the Sterling's Bucharest office and staff) will lead to a
further reduction. Because of redundancy costs and an ongoing
high level of legal and other advisory costs, total G&A Costs
(including such additional costs) is expected to be around
$13 million net of which $9 million will be spent in the last three
quarters of 2015 (note this is not an IFRS measure). Going forward,
the Company expects to have lower business development and
professional advisor costs from 2016 onwards. In aggregate, the
Company expects total G&A Costs to drop on a gross basis to
$8.5 million per annum for 2016
onwards and on a net basis (after allocations and partner
recoveries) to $6.5 million per
annum, approximately.
Exploration and Appraisal ("E&A") costs over the next few
years should be sharply reduced as a result of the planned Romanian
Sale. The only material E&A costs remaining relate to the
UK offshore, where Sterling has three outstanding commitment wells,
one each on block 21/30f (Sterling 20 percent interest; well yet to
be identified, transferred from Beverley prospect), block 49/19b
(Sterling 100 percent, Niadar prospect) and blocks 42/3a, 42/4,
42/5 (Sterling 100 percent, Ossian and Darach prospects). The
first (formerly Beverley) well cost is largely funded by existing
carry arrangements. The second well and third wells (Niadar
and Ossian/Darach) are expected to be drilled with a net paying
interest of 25 percent following a farm-out which Sterling is
seeking to achieve prior to drilling. On this basis, future
net E&A costs are as follows:
Period
|
Net E&A costs
$ million
|
Comments (major work
items)
|
2015
(Apr-Dec)
|
1
|
No material
activity
|
2016
|
5
|
UK Sheryl well
abandonment, UK Belinda/Evelyn
appraisal well, UK
Niadar exploration well
|
2017
|
6
|
UK Ossian Darach
exploration well
|
Sterling Resources is a Canadian-listed international oil and
gas company headquartered in Calgary,
Alberta with assets in the United
Kingdom, Romania, and
the Netherlands. The common shares
are listed and posted for trading on the Toronto Stock Exchange
Venture (TSX-V) exchange under the symbol "SLG".
Neither the TSX-V nor its Regulation Services Provider (as that
term is defined in the policies of the TSX-V) accepts
responsibility for the adequacy or accuracy of this release.
Filer Profile No.
00002072
Forward-Looking Statements
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, costs and valuation are deemed to be
forward-looking statements as they involve the implied assessment,
based on certain estimates and assumptions that the reserves
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.