CALGARY, April 8, 2013 /CNW/ - Sterling Resources Ltd. (TSX-V: SLG) ("Sterling" or the "Company") is pleased to announce that it is initiating the refinancing of its GBP 105 million senior secured credit facility (the "Bank Loan") through a proposed senior secured bond (the "Bond") issue of up to USD 225 million (the "Bond Issue"). Pareto Securities has been appointed as Sole Manager and Bookrunner of the Bond Issue.
The Bond is to be issued by Sterling's 100 percent owned UK subsidiary Sterling Resources (UK) Ltd. (the "Issuer" and, together with Sterling, the "Group"), and will have a wide-ranging security package including a charge over the Issuer's interest in the Breagh and Cladhan fields and the shares of the Issuer, and 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 existing Bank Loan.
Anticipated net proceeds from the Bond Issue may be used to prepay the Bank Loan, fund the continued development of the Breagh field, including development of the eastern portion of the field (Phase 2) and for up to USD 20 million of general corporate purposes.
If completed, proceeds should be received around the end of April 2013. The Company is also pleased to announce that it has signed agreements with TAQA Bratani Limited ("TAQA") which ensure that the Company is in a position, regardless of the closing of the contemplated Bond, to submit evidence of funding ability for its share of the development costs of Cladhan (the "Financing Condition") to the UK Department of Energy and Climate Control ("DECC") by April 17, 2013 to enable Field Development Plan ("FDP") approval (the "Cladhan Farm-Down"). These agreements also provide a full carry of development capital costs through to first oil, anticipated in 2015. Further information in relation to the Cladhan Farm-Down is set forth below under "Cladhan Farm-Down."
Commenting on the launch of the Bond Issue, Mike Azancot, Sterling's President and CEO, said, "The anticipated proceeds from the Bond Issue will enable Sterling to fully refinance the Bank Loan and provide additional capital to fund future expenditures for Breagh. In addition, the Bond Issue will provide the Company with accelerated access to Breagh cashflow, allowing us to continue our growth strategy in a financially disciplined manner. Finally, our new agreement on Cladhan for the full carry of the development cost removes any cost exposure through to first oil anticipated in early 2015 at an acceptable transfer of equity, which is an additional prudent financing arrangement."
Chair of the Sterling Board of Directors, Walt DeBoni added, "These initiatives will, upon completion, set the Company on a sound financial footing, positioning Sterling for a period of potential growth and disciplined investment in its development assets and selected additional opportunities. In addition to pursuing the Bond Issue, the Board actively continues to review all of the Company's strategic alternatives, as previously disclosed."
Cladhan Farm-Down
The Cladhan project is proceeding well and the partners are working towards achieving governmental approval for the FDP by the end of April 2013 and first oil at the beginning of 2015.
In April 2012 Sterling sold a 13.5 percent equity interest to TAQA (the "2012 SPA"). Part of the consideration was a third payment to be taken either as USD 20.4 million in cash or, as Sterling has now elected, a USD 53.6 million carry ("the First Carry") on Sterling's share of Cladhan development costs. Based on the submitted FDP development cost of GBP 367 million, approximately an additional USD 100 million is required over and above the First Carry to fund the current equity interest of 26.4 percent through to first oil.
As discussed above, Sterling has now signed further agreements with TAQA which ensure that the Company is in a position, prior to the closing of the contemplated Bond Issue, to submit evidence of funding ability for its share of the development costs to allow approval by the UK Government.
The agreements provide for a permanent transfer in stages of a 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 in Cladhan (the "Second Carry"), which will be transferred to TAQA for the duration of the carry. The 12.6 percent interest is to be transferred in three stages, such that if the Company provides evidence of its funding ability to DECC and/or TAQA (the "Financing Condition") by different dates a smaller interest is permanently transferred. A 3.0 percent interest will be transferred if the Financing Condition is not satisfied by April 17, a further 3.0 percent interest if not satisfied by May 31, and the remaining 6.6 percent if not satisfied by June 30. The consideration for the transfers is the provision by TAQA of the Second Carry.
The Company retains a 2.0 percent interest in Cladhan throughout, which is funded through the budgeted development cost out of a portion of the First Carry. The rest of the First Carry, which is not repayable, is available to fund development costs on the 11.8 percent interest into approximately Q2 2014, at which point the Second Carry starts funding the ongoing development costs. A 17 percent per annum uplift is applicable to such carried costs. After pay-out of the Second Carry, which is expected to occur in Q2 or Q3 2015, the 11.8 percent interest is returned to Sterling whose equity interest would then be 13.8 percent. In a downside case of higher capex, low oil prices or low production, the timing for pay-out would be delayed but Sterling has no further liability to TAQA. Should the 12.6 percent interest be transferred and the Second Carry received, the overall economics of this transaction are improved considerably by the fact that Sterling does not lose any of the significant historic capital allowances (approximately CAD 20 million as at January 1, 2013) associated with the 12.6 percent interest.
The proposed size of the Bond Issue would not be sufficient to allow Sterling to satisfy the Cladhan Financing Condition prior to June 30, and hence the farm-down of equity and the Second Carry will be triggered.
At the conclusion of this arrangement, assuming pay-out, the partnership interests will be Sterling 13.8 percent, TAQA (operator) 52.7 percent and Wintershall 33.5 percent. As part of this agreement, Sterling will transfer its 12.5 percent interest in South Cladhan to TAQA for a nominal consideration. Sterling retains the contingent upside payments linked to future reserves pursuant to the 2012 SPA.
These arrangements are subject to regulatory and partner approvals and consent of the lenders to the Bank Loan.
Planned Operational Activity for 2013-14
At this juncture, with the emergence of new financing and from the review of strategic alternatives, the Company will be examining the most effective allocation of expenditures across the portfolio. The material activities that are intended to be undertaken over the next two years, subject to approvals, comprise the following:
UK
- Complete activities for first gas from Breagh early August.
- Completion of Breagh Phase 1, including the completion of the drilling program associated with Breagh Phase 1 development which will include either drilling of a total of 10 wells from the Breagh Alpha ("BA") platform, or, if Phase 2 is agreed, the drilling of a total of 7 wells from the BA platform.
- Start of the development of Breagh Phase 2.
- Start of the development of the Cladhan field.
- Drill a commitment appraisal well on the Crosgan discovery in Q4 2013.
- Drill a commitment well on the Beverley prospect in Q3 2013 (carried by Shell).
- Drill a commitment well in UK Block 49/19 in 2014.
Romania
- Acquiring 3D seismic over the Midia and Pelican Concession in 2013 (2014 work program not specified yet).
- Drill one commitment well in 2013 and two commitment wells in 2014 on Block 27.
- Drill one commitment well in 2014 on Block 25.
- Conduct Ana and Doina pre-FEED work.
Netherlands
- Drill a second appraisal well in the F17 block in the Netherlands in 2014 (2014 work program not specified yet).
Production, Operating Cashflows and Capital Expenditure Guidance
Annual net production(1) from the Breagh field for the years 2013 and 2014 respectively is estimated at 4,500 boe/d and 7,500 boe/d net to the Company. With Cladhan on stream in 2015 and reflecting the terms of the Cladhan Farm-Down, the production is expected to be at a similar level in 2015 before increasing to 11,000 boe/d in 2016, of which approximately 80 percent is gas from the Breagh field.
During 2013, operating cash flow post general and administrative ("G&A") costs and financing costs are estimated to be approximately CAD 40 million(1). This is estimated to increase to approximately CAD 120 million(1) in 2014 with a full year of production from the Breagh field with further significant increases in 2015 and 2016.
Capital investments in 2013 are expected to be approximately CAD 100 million, of which approximately CAD 60 million is related to the UK Breagh field development and the balance is largely exploration and appraisal expenditure. In 2014, capital investments are expected to amount to approximately CAD 80 million.
Following the closing of the contemplated Bond Issue and the Cladhan Farm-Down, together with access to Breagh cash flow, the Group expects to be fully financed for all of its planned activities during the life of the Bond.
(1) Estimates from RPS based on report dated April 4, 2013 for Breagh reflecting August 1, 2013 first gas and report dated March 15, 2013 for Cladhan adjusted by management to reflect terms of the Cladhan Farm-Down. Short version reports can be seen on the Company's website.
UK Tax Position
Sterling UK is chargeable to UK ring-fence corporation tax ("CT", currently charged at 30 percent) and supplementary charge corporation tax ("SCT", currently charged at 32 percent) on its activities within the UK oil and gas ring-fence.
Sterling has very material tax losses available for corporation tax as a result of allowances generated by past exploration, appraisal and development costs and the application of Ring Fence Expenditure Supplement ("RFES"). CT losses at end 2012 are estimated at GBP 297 million and SCT losses at GBP 293 million (slightly lower than for CT, as financing costs are not allowable against SCT).
In addition, the Company is able to claim RFES, which is available as an additional allowance against CT and SCT at a rate of 10 percent per annum (compounded) on eligible losses, for 2013 to 2015 inclusive. Together with forecast UK ring fence expenditures over the next few years, Sterling is not expecting to pay UK tax prior to 2018 under management's base case assumptions, including committed UK exploration expenditure and expected G&A costs. The net value of the UK tax loss at end 2012 (together with future RFES available on top of this loss) is estimated by management to be approximately GBP 170 million on a discounted basis at 10 percent per annum on base case assumptions.
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 TSX-V 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 particular, Sterling has made forward-looking statements in this news release in relation to the anticipated completion of the Bond Issue and the Cladhan Farm-Down, the repayment of Sterling's existing senior credit facility, anticipated operational activities, production and tax liabilities. 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 purpose 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, Mobile: (403) 519-3912, george.kesteven@sterling-resources.com
