CALGARY, Nov. 21, 2012 /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 September 30, 2012. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.
For the three months ended September 30, 2012 the Company recorded a net loss of $10.0 million ($0.04 per share) compared with a net loss of $7.1 million ($0.03 per share) for the three months ended September 30, 2011 due to an increased unrealized loss on derivative financial instruments, increased pre-licence and other exploration costs, which were partially offset by reductions in net employee expense and general and administrative costs. For the nine months ended September 30, 2012 the Company recorded a net loss of $24.7 million ($0.11 per share) compared with a net loss of $41.5 million ($0.21 per share) for the nine months ended September 30, 2011.
For the nine months ended September 30, 2012 there were no dry hole costs, however during the nine month period ended September 30, 2011 the Company expensed dry hole costs of $9.7 million in relation to the unsuccessful Grian exploration well on Block 48/28b (Sterling 57 percent) in the UK Southern North Sea. During the second quarter of 2012 the Company announced that the South Cladhan exploration well, 210/29c-5, was not believed to have encountered hydrocarbons and was therefore plugged and abandoned, however as the well was drilled at no cost to Sterling pursuant to farm-out agreements, accordingly no dry hole costs were recorded.
During the third quarter of 2012 pre-licence and other exploration costs of $4.4 million were higher compared to the $2.0 million incurred during the third quarter of 2011. During the nine month period ended September 30, 2012, pre-licence and other exploration costs of $12.4 million were $3.1 million higher than those incurred during the first nine months of 2011, with $5.8 million attributable to Romania, $4.6 million related to offshore UK interests, and $2.0 million for the Netherlands and other international ventures.
Cash and cash equivalents at September 30, 2012 were $27.2 million compared to $50.0 million as at December 31, 2011. Net working capital was $34.1 million at September 30, 2012 compared to net working capital of $36.0 million at December 31, 2011. Net working capital levels have declined since year-end 2011 as a result of continued operational activities at Breagh, the drilling campaigns at South Cladhan and the Netherlands in the North Sea, which were partially offset by the funds received for the partial divestment of Cladhan.
A significant step towards further receipt of funds from asset rationalization, following our divestment of 13.5 percent of the UK Cladhan field earlier this year, was the execution of a sales and purchase agreement with ExxonMobil Exploration and Production Romania ("ExxonMobil") and OMV Petrom announced in mid-October, for the sale of Sterling's 65 percent interest in a portion ("Sale Portion") of Block 15 Midia in the Romanian Black Sea. The Sale Portion is along the south-eastern margin of the block, in deeper waters adjacent to ExxonMobil and OMV Petrom's deepwater Neptun block containing the Domino-1 gas discovery well some 35 kilometres to the southeast, and covers just 11 percent of the total area of the Midia and Pelican concession. On completion of the transaction, which is subject to governmental approvals, Sterling will receive the first payment of US$29.25 million. Receipt of the second payment of US$29.25 million is contingent upon the satisfaction of certain conditions relating to any hydrocarbon discovery to be made on the Sale Portion. The third instalment of US$19.5 million is contingent upon the commencement of any commercial production from the Sale Portion.
The carve-out and disposition of this Sale Portion of the Midia block allows Sterling to monetize that section of the block that will require more expensive deep water exploration techniques, beyond the reach of current jack-up rig technology, while allowing the Company to focus on the exploration and development of those fields and prospects in shallower waters. The transaction is indicative of the growing industry interest in the Romanian Black Sea and is most encouraging as we continue in the process to sell down a portion of the 65 percent interest in the Pelican block and in the Midia block (excluding the Sale Portion) and the 50 percent interest in the Luceafarul block.
During October and early November we received updates from RWE Dea UK SNS Ltd., operator of the Breagh field, of the results of a fully risked analysis of the onshore works at Teesside Gas Processing Plant ("TGPP") required before first gas from the Breagh field. The resulting integrated and detailed risked schedule, which is considered to be a more complete and full assessment, provides an earliest first production date of the end of March 2013 with the chance of slippage to the end of May 2013. The principal reasons for the delay include late design completion, rework of certain systems and late material deliveries. Estimated Breagh Phase 1 development costs now stand at £632 million (100 percent), an increase of 1.4 percent over the cost estimate of £623 million provided in the Company's second quarter report. These revised costs are attributable to the need for additional rock-dumping on the offshore pipeline, and costs to complete the TGPP modifications and onshore pipeline installation. The planning and implementation of activities at TGPP and the project costs overruns are a source of major concern for Sterling. We will continue to do all that we can as the non-operated partner in the joint venture to ameliorate the unacceptable outcomes on this critical part of the project.
Although the onshore project delays take centre stage as they affect our near term business, it is vitally important to remember that the reserves for the Breagh field are unaffected. Indeed the development drilling results so far have been very encouraging. The third Phase 1 development well (A-03), which is the first to be newly drilled from the Alpha platform, has been drilled to a location at a horizontal displacement of 2,300 metres to the north of the platform. Preliminary analysis of the main reservoir has again exceeded expectations, with approximately 99 feet of vertical net pay in reservoir Zone 1, an increase of 33 percent over the expected thickness. We have previously announced the positive results of the first two wells, A-01 and A-02, both of which encountered a materially thicker than expected gas-bearing reservoir section and also encountered approximately 25 feet of net pay in reservoir Zone 3 which was not encountered in either of the original wells; subject to production testing this could lead to increased reserves in the field. During November and December these three wells will be flow tested and it is anticipated that five wells will be on-stream when production commences during the window mentioned above.
We resumed our exploration efforts in the Black Sea after a long enforced period of inactivity by drilling the Ioana prospect in the Midia block after the end of the quarter. This well, in the north-western part of the large 150 square kilometre prospect, reached a total measured depth ("MD") of 1,950 metres, 1,513 metres true vertical subsea ("TVDSS") with natural gas shows from drilling mud gas measurements experienced from a depth of 500 MD down to the total depth. The primary objective identified by 2D seismic was encountered as prognosed with gas shows from drilling mud gas measurements over a 70 metre interval between 1,186 to 1,422 metres TVDSS. Shallower sands of 55 metres thickness between 831 and 910 metres TVDSS with gas shows from drilling mud gas measurements were identified prior to setting intermediate casing. We were encouraged by the gas shows in the primary objective; however, the reservoir development is poorer than expected in this up dip area of the prospect and will require further seismic and drilling work to explore and appraise the large Ioana structure further to the east. This large prospect still has significant potential given that we have established the presence of gas.
The jack-up drilling rig has now started operations on the Eugenia-1 well in the oil-prone Pelican block. The well is expected to take 30 days to complete and will be the first exploration well to be drilled on the block.
While Sterling Resources provides for material growth potential through its high quality asset base and its dedicated staff, our Company is deeply affected by the delay to first gas from the Breagh project. The impact of the delays has been severe and immediate and has led to the recent need to seek additional funding to ensure a prudent cash balance before production revenues are obtained. Subsequent to the quarter end, we embarked on a marketed equity offering of up to $45 million with a process led by RBC Capital Markets. However, with a dramatic drop in share price on announcement it was not possible to agree suitable terms and the offering was terminated. Alternative short-term funding options, already reviewed before the offering, are now being pursued as well as efforts to negotiate revisions to some of the terms of the Breagh reserves-based loan facility or to refinance it entirely.
Subject to financing, the Company looks forward to progressing activities including the development planning for the Ana and Doina fields, the approval and commencement of the Cladhan field development and similarly, the approval and advancement of the Breagh Phase 2 development. In addition, we intend to continue with exploration and appraisal activities throughout our international portfolio.
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
All statements included in this press 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 press 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 press 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 press release should not be used for purpose other than for which it is disclosed herein.
SOURCE: Sterling Resources Ltd.
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