CALGARY, Jan. 13, 2014 /CNW/ - Sterling Resources Ltd. (TSXV: SLG) ("Sterling" or the "Company") announces an operational and financial update, including the Company's plans for 2014.
Operational Update - Breagh
Since recommencing production operations on December 27, the field has been in continuous production and achieved a maximum field production of 116 million standard cubic feet of gas per day ("MMscf/d"). Routine pipeline pigging operations have resumed, following the repair.
The partnership continues with plans to hydraulically stimulate the A07 well and drill the A08 well once the ENSCO 70 rig returns following various maintenance and certification activities being performed in a Teesside shipyard. An appraisal well is also scheduled to be drilled during the second half of 2014 on the Crosgan gas discovery, located 25 kilometres northeast of Breagh on blocks 42/10 and 42/15.
At the start of 2014, the remaining capital expenditures on Breagh Phase 1 (including the hydraulic stimulation of well A07, the new A08 well and onshore compression) are expected to be £23 million (US$37 million) and should be completed by 2016.
Total net production at Breagh during 2013 was 309 MMscf. Expected production guidance for 2014 remains 129 MMscf/d for 100 percent of the field (39 MMscf/d net to Sterling), as previously announced on November 20, 2013.
Operational Update - Cladhan
The Cladhan development is proceeding satisfactorily with much of the subsea equipment and line pipe either under order or having been delivered. Removal of some redundant equipment on the TAQA-operated Tern platform in order to accommodate the Cladhan tie-in has begun. The project continues on schedule and within budgeted costs, and the expected start date for production remains first quarter 2015.
The Cladhan A2 appraisal well, which targeted a possible extension of the field to the north of the main accumulation, reached total depth in December 2013 and encountered sands and hydrocarbons, but limited net reservoir thickness. The well has been suspended in order for the drilling rig to depart for routine maintenance and inspection before returning to side-track the well to the planned water injection location during the second quarter of 2014.
Operational Update - Romania
At the end of 2013, Sterling as operator completed a 3D seismic survey over a portion of the Luceafarul block (Sterling 50 percent) and with the same vessel is now acquiring a 3D survey over the Ana/Doina trend in the Midia block (Sterling 65 percent and operator). Later in 2014, Sterling plans to acquire further 3D seismic over the large Ioana prospect (on which a well was drilled in 2012) and over the Eugenia discovery in the Pelican block; for operational reasons it was not possible to extend further the current acquisition contract.
An exploration well is planned to be drilled on a prospect in the Luceafarul block towards the end of 2014.
Sterling notes the recent announcement by the operator of the offshore Muridava licence, Petroceltic International, indicating that only one well will now be drilled in 2014 with the two other commitment wells postponed to early 2015. Sterling has a 40 percent interest in this block. The 2014 well Muridava-1 is expected to spud around the end of the first quarter, as announced previously, and is expected to take two months to complete. The well is on the same geological trend as the existing Olimpiyskaya and Eugenia gas discoveries and has targets in three formations.
Sterling still expects to complete the Midia carve-out transaction (transfer of a part of the Midia block to ExxonMobil and OMV Petrom) during the first quarter of 2014. The legal basis for sub-dividing the Midia block has been resolved by means of an ordinance passed by the Romanian government in December 2013 and all parties are working to complete the transaction in the near future. The Company is also continuing with its plans to sell down its equity interest in all of its offshore Romanian blocks, which it expects to complete in the second half of 2014.
The development of the Ana and Doina fields in the Midia block continues to be evaluated by Sterling but the timing of first production is now expected to occur during 2019. This will allow for optimization of the development to reflect 3D seismic being acquired in 2014 and to incorporate any exploration or appraisal success in Midia and nearby blocks over the next two years, which should add value by leading to a larger regional development.
The South Craiova concession was relinquished effective December 15, 2013, and as a result the Company no longer holds interests onshore Romania.
Operational Update - Netherlands
A 3D seismic survey is planned over the oil discoveries and prospects in the Jurassic and Early Cretaceous horizons in blocks F17a and F18 (Sterling 35 percent) in the second half of 2014. This will improve reservoir understanding and assist in evaluating development options. The oil discovery by Wintershall with well F17-10 in late 2012 (which it estimated as being over 30 million barrels) in the shallower, Late Cretaceous horizon has, in the view of Sterling and partner EBN, increased the likelihood of a regional oil development hub. Sterling estimates that first production could be achieved in 2019.
Financial Update and 2014 Cash Flow
Cash and cash equivalents at the end of 2013 were approximately C$45.5 million, of which C$8.4 million were restricted and C$37.1 million unrestricted. The restricted funds relate to amounts held in two UK escrow accounts pursuant to the agreement applicable to the US$225 million senior secured bonds issued in April 2013 (the "Bond"), one to be used for Breagh-related costs and the other for Bond debt service payments.
Operating cash flow from the Breagh field in 2014 (revenues less operating costs less payments due to Gemini Oil & Gas Fund II) are estimated by Sterling to amount to US$125 million, assuming net production of 39 MMscf/d and a forward curve gas price (as at end 2013) of 66.7 pence per therm (US$10.90/Mcf). This cash inflow should be augmented by the US$29.25 million (pre-tax) proceeds of the Midia carve-out transaction in the first quarter.
Key capital expenditures in 2014 on development projects, exploration wells and seismic are estimated to be approximately as follows:
- UK Breagh Phase 1 development: US$30 million.
- UK Cladhan development: zero cost as this is covered by carry arrangements pursuant to transactions with TAQA Bratani in 2012 and 2013.
- Other pre-development costs (Breagh Phase 2 and Ana/Doina): US$4 million (it is possible that Breagh Phase 2 development costs arise before the end of 2014, but this is dependent upon the timing of Field Development Plan approval).
- Other UK exploration and appraisal expenditures including the Crosgan appraisal well: US$14 million.
- Romania and Netherlands exploration and appraisal expenditures including Midia and Pelican seismic, Luceafarul and Muridava wells, and F17a/F18 seismic: US$41 million.
Net General & Administrative ("G&A") costs, after allocations to licences and partner recoveries, are expected to be approximately US$7 million.
Debt service is expected to be US$43.9 million (US$20.3 million interest and US$23.6 million amortization).
In total, capital expenditures, G&A costs and debt service are therefore expected to amount to approximately US$140 million in 2014.
A new corporate presentation is being uploaded to the Company's website which will be presented at the TD Securities London Energy Conference on January 14, 2014.
Jake Ulrich, Chairman and Interim CEO, commented, "As we start 2014 we can look forward to a year of growth with Breagh onstream, Cladhan under development and an exciting program of exploration and appraisal activity in the UK, Romania and the Netherlands. Our existing cash and expected operating cash flow from Breagh should be comfortably in excess of our expected expenditures and in addition we should receive proceeds from our Romanian Midia carve-out in Q1 2014. We are highly committed to reducing the discount to net asset value at which our shares trade, and our technical, financial and commercial activity during 2014 will be conducted with this very much in mind."
Sterling 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 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.
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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 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:
For further information: visit www.sterling-resources.com or contact:
Jacob Ulrich, Chairman and Interim Chief Executive Officer, Phone: 44-20-3008-8485, Mobile: 44-7876-346399, jake.ulrich@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, Mobile: (403) 519-3912, george.kesteven@sterling-resources.com
