Sterling Resources announces second quarter operating and financial results
CALGARY, Aug. 20, 2013 /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, 2013. Unless otherwise noted all figures contained in this report are
denominated in Canadian dollars.
For the three months ended June 30, 2013 the Company recorded a net loss of
$20 million ($0.06 per share) compared with a net loss of $7.0 million ($0.03
per share) for the three months ended June 30, 2012. This larger loss is
mainly attributable to refinancing costs related to the replacement of the
previous Reserves Based Loan (the "Credit Facility") with a Senior Secured
Bond (the "Bond") and related banking and professional fees, including the
expensing of $3.6 million of previously capitalized transaction costs relating
to the Credit Facility. The Company incurred a total of $9.6 million of costs
related to the refinancing during the three months ended June 30, 2013 which
includes the previously capitalized transaction costs. During the first
quarter of 2013, $1.6 million of one-time banking, legal and consultancy fees
related to the strategic review process were incurred.
Pre-licence and other exploration costs during the second quarter of 2013 were
$2.2 million, a decrease of $3.9 million compared to the same period in 2012.
For the six month period ended June 30, 2013 pre-licence and other exploration
costs totaled $3.5 million, a decrease of $4.6 million. Geographically, $0.7
million ($4.7 million in 2012) related to licenses in the United Kingdom, $2.0
million ($2.1 million in 2012) to Romania, and $0.8 million ($1.3 million) to
the Netherlands and other international ventures. Seismic expenses of $3.2
million during the first half of 2012 related to the 42/13b, 42/17 and 42/18
(Lochran) licences in the UK account for most of the reduction year over year.
Employee expense and general and administrative expenditures charged to
exploration licences as pre-licence costs were $1.4 million higher in the
first half of 2013 than the comparable period in 2012, due to a change in the
composition of operated versus non-operated projects.
A realized foreign exchange loss of $4.1 million was incurred during the
second quarter of 2013 on the repayment of the UK pound denominated Credit
Facility from the US dollar denominated Bond facility as a result of the UK
pound strengthening against the Canadian dollar. A foreign exchange loss of
$0.6 million was incurred during the first quarter of 2013 which arose on the
US dollar denominated short-term loan as a result of the Canadian dollar
weakening in comparison to the US dollar. The comparable foreign exchange loss
during the first half of 2012 was only $0.2 million.
Net employee expense for the six month period ending June 30, 2013 was $3.8
million a decrease of $0.4 million compared to same period in 2012. Total
employee expense was composed of non-cash share based compensation of $0.8
million and $3.0 million of salaries and wages. Non-cash share based
compensation was down significantly from the $2.5 million level during the
first half of 2012, as certain options were fully amortized and no new options
Recoveries from partners and those amounts capitalized to assets were down in
the first half of 2013 relative to the first half of 2012, as operatorship of
the Cladhan licence was transferred to TAQA Bratani, and there was no operated
drilling activity during 2013, while two operated wells were drilled in the
first quarter of 2012. For the six month period ended June 30, 2013, net
general and administrative expense after recoveries was $1.5 million, an
increase of $0.3 million over the same period in 2012, due principally to
increased head office and legal fees.
Total financing costs during the second quarter of 2013 were $0.9 million
including $0.8 million of expensed accrued interest and the amortization of
Bond related transaction costs for that portion of the issue not related to
the cost of Breagh development. The remainder of the financing costs are
accretion of the discount on decommissioning obligations and have increased
during the period as decommissioning obligations for Breagh have increased.
During the first quarter $2.1 million of financing costs were incurred, of
which $2.0 million related to transaction costs for the US $12 million
bridging loan facility.
Cash and cash equivalents totaled $53.8 million at June 30, 2013 compared to
$9.4 million at December 31, 2012. Restricted cash of $48.2 million at June
30, 2013 was comprised of $34.9 million to be utilized for Breagh development
expenditures, $10.4 million in a retention account to cover the initial bond
interest payment payable on October 30, 2013, minor amounts of cash held in
escrow and $2.7 million held in joint venture bank accounts in Romania.
Net working capital of $90.3 million at June 30, 2013 represents a significant
increase in working capital from year-end 2012 due to the Bond refinancing
process, the reduction of drilling activity in Romania and the proceeds of the
first quarter equity offering, all of which were offset by ongoing development
costs at Breagh.
During April the Company refinanced its £105 million Credit Facility through
a Bond issue of US $225 million. The Bonds were issued by Sterling's wholly
owned UK subsidiary Sterling Resources (UK) Ltd. and have a wide-ranging
security package including a charge over the UK subsidiary's interests in the
Breagh and Cladhan fields and over the shares of the UK subsidiary, as well as
a parent company guarantee. In addition to providing further financing and
enabling Sterling accelerated access to the cash flow from the Breagh field,
the other terms and conditions of the Bond issue will be less restrictive than
those of the previous Credit Facility. The Company expects to be fully
financed for all of its planned activities during the life of the Bond even in
the event that proceeds from the Midia Block carve-out transaction are delayed.
During early May the Company reached agreement with several of its largest
shareholders, collectively representing approximately 40 percent of the issued
and outstanding common shares, to support the ongoing growth of Sterling as a
public company. At the same time, Vitol confirmed that it had abandoned its
previously announced intention to make a take-over bid for Sterling's common
shares. Subsequently, Messrs. Jacob S. Ulrich, James H. Coleman and Gavin
Wilson were elected as directors at the annual general and special meeting of
shareholders held on June 11th with Mr. Ulrich named as Chair. In
conjunction with the election of these new directors, incumbent directors Walt
DeBoni, Graeme Phipps and Stewart Gibson agreed not to stand for re-election
to the board. The Company would like to express profound thanks and gratitude
to these retiring board members for their service and dedication to the
Company during the course of their tenure.
"The delays and cost increases at Breagh have been intensely frustrating for
shareholders, bondholders and all of those associated with Sterling.
However, with our balance sheet strengthened and Breagh production and cash
flow imminent, the Company is now well positioned to pursue the exploration
and development of its attractive portfolio of assets," stated Mike Azancot,
Sterling's Chief Executive Officer. "We look forward to the commencement of
production at Breagh and the opportunity to execute these plans in order to
deliver value to our shareholders whose patience is greatly appreciated,"
added Mr. Azancot.
In April, the Company signed agreements with TAQA Bratani Limited ("TAQA")
which ensured that the Company was in a position to provide evidence of its
ability to fund its share of Cladhan development costs to DECC by the end of
that month in order to obtain FDP approval. Under the terms of the agreement
with TAQA a full carry of development costs through to first oil (expected at
the beginning of 2015) is provided. The full carry of the Cladhan development
costs removes any cost exposure through to initial oil production with an
acceptable transfer of equity to TAQA. The development program is
progressing with many major contracts awarded and plans for drilling the first
development well to start late in 2013 or early 2014.
The exploration well on the Beverley prospect in the UK central North Sea
cannot be drilled this year due to the very tight rig market. This well, in
which Sterling will be fully carried by Shell, will therefore be drilled as
soon as possible in 2014.
At the end of June, a revised timetable for the regulatory approval of Phase 2
of the Breagh development was agreed with the UK Department of Energy and
Climate Control ("DECC"). This postpones the date for submitting an Addendum
to the existing Field Development Plan ("FDP") to the end of December 2013
with approval not expected before June 2014. The postponement is needed to
ensure the development of the eastern side of the field is optimized to
reflect the results of the recently drilled A03 and A05 wells. Consequently,
at this juncture Phase 2 first gas could be expected no sooner than late in
2016. The Company intends to fund the Phase 2 development from Phase 1 cash
flow and potentially from a portion of the proceeds from the Bond issue.
Subsequent to the end of the quarter the Company was informed by the Breagh
operator RWE Dea that first gas sales from the Breagh field would be delayed
by a few weeks due to remedial work identified during the commissioning of the
Teesside Gas Processing Plant ("TGPP"). Planned leak tests conducted prior
to the introduction of hydrocarbon gas revealed the need to address high
pressure vessel and line issues. Remediation of these TGPP site issues is
progressing well and all other work is progressing as expected, however it is
likely that start-up will slip to mid-September. Offshore facilities and the
export pipeline to the terminal are fully commissioned and pressured with
hydrocarbon gas, ready to commence production immediately upon completion of
the TGPP related work.
In early August, the Breagh A05 well was completed and production tested.
Despite encountering a similar geological section to the A03 well, it flowed
at a rate of 21 million standard cubic feet of gas per day ("MMscf/d"),
considerably less than A03 test rate of 57 MMscf/d. RWE is evaluating the well
data and may recommend prompt remedial actions to improve production from
zones that may have experienced clay swelling from influx of water during the
completion phase. The A04 well, which was originally completed in February
2013, was also production tested and flowed at a rate of 26 MMscf/d. Based
on the results of these production tests from wells A04 and A05, total average
daily production during 2014 at Breagh is now estimated to be 112 MMscf/d (33
MMscf/d net to Sterling) which includes a contribution from well A07 expected
from February 2014. With these recent production tests now completed, the
Ensco 70 rig has resumed drilling of well A06.
In Romania, work with the government continues in order to expedite the
closing of the sale of the Midia Block carve-out acreage to ExxonMobil/OMV
Petrom and the receipt of approximately US $29 million by around the end of
Plans have been finalized for the drilling of an exploration well in the
fourth quarter of 2013 on the Muridava block in the Romanian Black Sea, in
which Sterling holds a 40 percent interest. The well is due east of the
Eugenia well, drilled last year in the Pelican block, and is targeting a 169
Bcf prospect according to the operator Petroceltic International plc. In
addition, we intend to acquire 3D seismic over part of the Luceafarul block,
in which we are operator with a 50 percent equity interest. The acquisition
of 3D seismic over the Midia and Pelican blocks and additional exploration and
appraisal drilling is now expected to be conducted in 2014.
We continue to review the options and timing for a farm down of our large
equity positions in our offshore Romania blocks.
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
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.
Visitwww.sterling-resources.com or contact:
Mike Azancot, President and Chief Executive Officer, Phone: 44-20-3008-8488,
David Blewden, Chief Financial Officer, Phone: 44-20-3008-8488, Mobile:
George Kesteven, Manager, Corporate and Investor Relations, Phone: (403)
215-9265, Fax: (403) 215-9279, Mobile: (403)
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-0- Aug/20/2013 21:00 GMT
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