CALGARY, May 21, 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 March 31, 2013. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.
For the three months ended March 31, 2013 the Company recorded a net loss of $8.9 million ($0.04 per share) compared with a net loss of $7.6 million ($0.03 per share) for the three months ended March 31, 2012. This larger loss is mainly attributable to $2.0 million of costs related to a short-term loan used as bridge financing during the first quarter and to $1.6 million of one-time banking and professional fees associated with procurement of additional funding.
Pre-licence and other exploration costs during the first quarter of 2013 were $1.3 million, a decrease of $0.8 million compared to the same period in 2012. Of this total cost, approximately $0.8 million was related to licences in the UK, an amount similar to that expended during the first quarter of 2012; $0.2 million was related to licences in Romania compared to $0.6 million expended during the first quarter of 2012; and $0.4 million related to licences in the Netherlands and other international ventures compared to $0.5 million during the first quarter of 2012.
A foreign exchange loss of $0.6 million was incurred during the first quarter of 2013 related the US dollar denominated bridge loan as a result of the weakening of the Canadian dollar in US dollar terms. The comparable foreign exchange loss of $0.3 million for the same period during 2012 was primarily due to the weakening of the US dollar compared to the UK pound on translation of US dollar cash balances.
Net employee expense for the quarter was $1.9 million a decrease of $0.9 million compared to same period in 2012. Total employee expense was composed of non-cash share based compensation of $0.6 million and $1.3 million to salaries and wages. Non-cash share based compensation was $0.8 million less than the amounts in the first quarter of 2012, as certain options were fully amortized and no new options were granted.
Cash and cash equivalents totaled $21.0 million at March 31, 2013 compared to $9.4 million at December 31, 2012. Restricted cash of $29.3 million was held at March 31, 2013 comprised of $23.9 million related to anticipated Breagh expenditures, $5.9 million held in joint venture bank accounts for the Romanian drilling campaign and $0.5 million in other escrow accounts.
Net working capital, excluding the current portion of long-term debt, totaled $36.3 million as at March 31, 2013. The current portion of the long-term debt of $132.5 million was refinanced in May 2013 and has therefore been excluded from the derivation of this net working capital figure. Ongoing delays in the commencement of production at Breagh and increasing development costs resulted in the Company fully drawing the credit facility, and therefore raising additional funding through an equity offering and bond issuance. During 2013, net operating cash flow after general and administration costs and financing costs is expected to be approximately $35 million. Net operating cash flow is anticipated to rise to approximately $120 million during 2014 when a full year's production will be achieved and cash flow is expected to increase during 2015 and 2016 as production continues to ramp up.
The net proceeds from the Bond issue of approximately $US219 million were received into an escrow account on May 2, 2013 and disbursed to the Company shortly thereafter following perfection of security. With the bond issue settled, the Cladhan farm-down completed and access to upcoming cash flow from Breagh the Company expects to be fully financed for all of its planned activities during the term of the bond. Following the repayment of the bank credit facility with the proceeds from the bond issue, pro-forma cash (including restricted cash) as at March 31, 2013 is approximately $125 million.
"We look forward to first gas production from Breagh later this summer, which will be a major milestone for Sterling and the culmination of nine years of work," stated Mike Azancot, President and CEO of Sterling. "The bond issue settled subsequent to the quarter end has provided Sterling with additional funding, which allowed us to refinance the existing bank credit facility and will allow us to fund an exciting program of exploration, appraisal and development activity for the remainder of 2013 and beyond," added Mr. Azancot.
Operational Update
United Kingdom
In early April 2013, subsequent to the end of the first quarter, an update on the progress at Breagh was provided to us by the operator RWE Dea. A further significant delay to the modifications to the Teesside Gas Processing Plant means the earliest estimate for first gas is now mid-July, with a best estimate of early August and a late case of the final week of August 2013. At the date of writing, substantially all mechanical construction works are completed and the commissioning phase is progressing satisfactorily with the first gas timing unchanged. During the quarter, the 4th production well was completed. The fifth well encountered problems when cementing the 7" liner, which has required a sidetrack of the well from the intermediate section. Five development wells are expected to be on production as the field comes on stream in July or August. Initial gross production at Breagh is expected to be approximately 150 million standard cubic feet per day ("MMscf/d") with five of the seven planned production wells on-stream. Average production for the final five months of 2013, assuming production begins in early August, is expected to be approximately 170 MMscf/d dependent on plant up-time after first gas, and timing of start-up of the 6th and 7th production wells.
Forecast costs for Phase 1 completion (7 wells) are now estimated to be £561 million ($897 million) for 100 percent of the field or £168 million ($269 million) net to Sterling, an increase of £16 million (100 percent interest) since the 2012 Operating and Financial Results issued on April 29. This comprises an increase in well costs of £13 million mainly to complete drilling on A05 and a £3 million increase in facilities costs (mainly onshore plant and onshore pipeline) and additional time-writing costs.
Phase 2 of the Breagh development project, targeting reserves in the eastern area of the field, is currently being evaluated and is likely to comprise a second unmanned platform ("Breagh Bravo"), installation of a six kilometre, 20 inch pipeline from the Breagh Bravo to the Breagh Alpha platform, and development drilling of seven or eight deviated wells from Breagh Bravo to locations arrayed up to approximately two to three kilometres from the platform.
An appraisal well at Crosgan, a gas discovery located some 25 kilometres northeast of the Breagh field, remains an outstanding obligation for the licence and a well is planned for the first quarter 2014 utilizing the ENSCO 70 rig, following completion of the seventh development well at Breagh and necessary annual survey work with the rig. Should Crosgan be declared commercially viable, a development project will be initiated with the intent to tie a small gas platform back to the Breagh Bravo platform on the east side of Breagh.
Development of the Cladhan field in the UK Northern North Sea has progressed, having received field development plan (FDP) approval from DECC in mid-April. First oil production is expected at the start of 2015.
In addition to the sale of a 13.5 percent interest to TAQA Bratani Limited ("TAQA") in April of 2012, Sterling signed further agreements in April 2013 which ensured that the company was in a position to submit evidence of funding ability for its share of development costs to expedite approval by DECC. The agreements provide for a permanent transfer in stages of a cumulative 12.6 percent interest in the Cladhan field to TAQA and a repayable carry by TAQA of development expenditures on an 11.8 percent interest, which will be transferred to TAQA for the duration of the additional second carry. Sterling retains a 2.0 percent interest in Cladhan throughout, which is funded out of a portion of the initial carry negotiated in April of 2012. The initial carry, which is not repayable, is to be utilized to fund development costs on the 11.8 percent interest into approximately the second quarter of 2014, at which point the second carry begins to fund ongoing development costs. A 17 percent per annum uplift is applicable to the second carry. Repayment of the second carry to TAQA is expected to occur by the third quarter of 2015, with the 11.8 percent interest then returned to Sterling. In the event of a downside case, such as higher capital costs, lower oil prices or lower than expected production, the time allotment for pay-out would be delayed, but Sterling has no further liability to TAQA. At the conclusion of this arrangement with TAQA, assuming payout, Sterling will hold a 13.8 percent interest in Cladhan. As part of the arrangement, Sterling will transfer its 12.5 percent interest in South Cladhan to TAQA for nominal consideration; however Sterling retains the contingent upside payments linked to future reserves pursuant to the April 2012 agreement.
On April 17, 2013 Sterling was pleased to announce the successful placing of a US$225 million senior secured bond with an interest coupon of 9.0 percent per annum, issued by its UK subsidiary. The net proceeds of approximately US$219 million from the bond have been used or are expected to be used (i) to prepay the entire secured credit facility of approximately $140 million (including related costs) with the group of lending banks, (ii) towards funding ongoing development costs of the Breagh field (including Phase 2), (iii) to prefund the first interest payment due October 2013, and (iv) up to $20 million, for general corporate purposes. The bond has a wide ranging security package including a charge over the interests in the Breagh and Cladhan fields, the shares of the issuer and a parent company guarantee. Under the terms of the bond, the Company is also required to maintain certain financial and non-financial covenants. Significantly, the bond agreement allows immediate access to Breagh Phase 1 cash flow and does not restrict the movement of funds from the UK to other group companies.
With funding now in place, the Company is poised to move forward with the development of its attractive asset portfolio. During the remainder of 2013 we intend in the UK North Sea to: (i) achieve first gas production from Breagh during July or August; (ii) in conjunction with the operator at Breagh, RWE Dea, finalize a FDP for Breagh Phase 2 and present a draft FDP to the UK regulator (DECC) by mid-year, providing evidence of funding ability in the third quarter of 2013 with the intent of receiving development approval by year-end; (iii) advance the development of Cladhan through the procurement of long-lead items, with the intent to commence drilling by year-end; and (iv) drill a fully carried well on the Beverley oil prospect on UK Block 22/26c.
Romania
In the Romanian Black Sea we intend to remain active during the remainder of 2013 and progress commerciality by: (i) acquiring seismic over parts of the Midia and Pelican blocks in the second half of the year, (ii) reviewing the front-end engineering and design work at Ana and Doina; (iii) purchasing the land required for onshore pipelines and a gas processing terminal for future Midia gas development; (iv) completing seismic over a portion of the Luceafarul block; and (v) drilling one exploration well in the Muridava block.
The sale process for a farm-down of the Company's interest offshore Romania has been adversely affected by the recent uncertainty of Sterling's future due to the announcement by Vitol of a proposed take-over offer. Sterling had been very close to executing an agreement with the preferred bidder which then withdrew during this period. A review of the farm-out options is now being conducted. Completion of the previously announced sale of a carve-out portion of the Midia block to ExxonMobil and OMV Petrom, generating an initial upfront cash payment of US$29.25 million, is now not expected before the end of June 2013.
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 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 releasee.
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 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:
Mike Azancot, President and Chief Executive Officer, Phone: 44-20-3008-8488, Mobile: 44-7740-432883, mike.azancot@sterling-resources.com
David Blewden, Chief Financial Officer, Phone: 44-20-3008-8488, Mobile: 44-7771-740804, david.blewden@sterling-resources.com
George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Fax: (403) 215-9279, Mobile: (403) 519-3912, george.kesteven@sterling-resources.com
