CALGARY, July 6, 2015 /CNW/ - Sterling Resources Ltd.
(TSX-V: SLG) ("Sterling" or the "Company") announces an update to
Breagh operations and a financial update. Unless otherwise noted
all dollar figures contained in this release are denominated in
U.S. dollars.
Breagh Operations and Capital Expenditure
Production at Breagh in the first half of 2015 was in line with
expectations. In the past few weeks, baseline inspection of
offshore and onshore facilities has been completed. In late May an
intelligent pig run was made in the offshore and onshore pipeline
and during June a planned three week shutdown of the field was
successfully completed ahead of schedule. All results from
the inspection surveys are in line with expectations, with no
significant issues raised.
Headline production figures for the first half of the year are
as follows:
- The average rate in first half 2015 was 104.8 million standard
cubic feet of gas per day ("MMscf/d") of sales gas for the full
field (31.5 MMscf/d net to Sterling). This is inclusive of the
three week shutdown in June.
- Plant uptime was in excess of 95 percent, exclusive of the
three week planned shutdown period.
- In addition to gas production, condensate was produced at an
average condensate-gas ratio of 3.8 barrels per MMscf of sales
gas.
The forecast for the second half of 2015 is 99 MMscf/d sales gas
for the full field (29.7 MMscf/d net to Sterling). The full year
production average forecast remains at 103 MMscf/d of sales gas for
the full field (30.9 MMscf/d net to Sterling), in line with
previous guidance.
Alongside normal production operations, planning for the
installation of onshore compression and for a further campaign of
development drilling has continued. Front-end engineering and
design for the onshore compression project, based on a gas-turbine
driver, is scheduled to commence mid-July
2015 with final approval expected in October 2015.
Compression is expected to be operational from mid- 2017.
Processing of the Breagh 3D seismic data is continuing with
delivery of final processed data expected in September 2015. The currently available
information is being combined with production history and results
of the successful hydraulic fracture operations on wells A07 and
A08 to support the infill drilling campaign. It is planned that all
wells in the campaign will be fracked (hydraulically
stimulated).
DEA UK as operator is currently
progressing a drilling rig and services tender exercise, with the
expectation of commencing the drilling campaign in December 2015 running through to completion
during 2017. Sterling expects that the work program will
comprise the drilling of 3 or 4 new wells and the re-entry and
fracking of 2 or 3 existing wells. For the purposes of
estimating capital expenditure ("capex"), Sterling currently
assumes that the work program will comprise 4 new wells and the
re-entry and fracking of 2 existing wells. The actual program
will however depend on the results of the seismic interpretation,
the ongoing performance of existing wells and the initial results
of the new wells and fracs. It is further expected that the
fracking of new and existing wells will occur in batches for
greater operational efficiency and lower cost.
Sterling management now estimates capex for the remaining Phase
1 work program and pre-sanction costs for Phase 2 from the
beginning of 2015 to have fallen to $87
million net to Sterling. This is a significant
reduction of $38 million from the
previous guidance of $125 million set
out in the news release dated March
27, 2015. This previous capex estimate was based on
the forecast provided by the Company's independent reserves
evaluator RPS Energy in the year-end 2014 reserves report,
re-phased by Sterling to reflect the expected work program.
This reduction is a result of several factors:
(i) A significant reduction in drilling rig day-rates and
associated service costs;
(ii) Firming up of overall project costs for onshore compression
in light of the preferred gas-turbine driver (subject to final
approval);
(iii) An updated technical assumption that the two existing
wells do not need to be side-tracked before being fracked;
and
(iv) Batch fracking of new/existing wells, rather than
sequential fracking.
The total remaining capex is expected by Sterling to be phased
as follows:
Period
|
Capex net to
Sterling, US$ millions
|
Phase
1
|
Phase
2(1)
|
Total
|
H1 2015
|
3
|
1
|
4
|
H2 2015
|
2
|
2
|
4
|
2016
|
47
|
0
|
47
|
2017
|
32
|
0
|
32
|
Total
|
84
|
3
|
87
|
(1) Prior to
project sanction
|
Production estimates beyond 2015 currently remain as per
previous guidance.
Financial Update
The sale of the Company's Romanian business to an affiliate of
the Carlyle Group (as announced on March 26,
2015; the "Romanian Sale") is now expected to close in early
August 2015. On this basis, an
additional $0.75 million amendment
fee would be payable shortly after July 15,
2015 to holders of the Company' senior secured 2019 bond
(the "Bond") in accordance with the Bond amendments approved by
Bondholders on May 8, 2015 (as
described in the news release dated April
23, 2015).
At the end of June 2015, the
Company had total group cash resources of $12 million. At the end of October 2015, the Company is expected to have a
cash deficit of approximately $20
million, after (i) completion of Romanian Sale in the first
half of August, (ii) paying the outstanding amortization instalment
from April 30, 2015 (with a 7.5
percent premium and accumulated interest) of $24.8 million upon closing of the Romanian Sale,
(iii) making an amortization instalment (with a 7.5 percent
premium) and interest payment of $33.3
million on October 30, 2015,
and (iv) providing for $10 million of
minimum UK unrestricted cash from October
31, 2015. Work continues on a debt-based refinancing
of the Bond to provide a long-term financing solution for the
Company.
Jake Ulrich, Sterling's Chief
Executive Officer, commented: "We are very pleased that the first
annual shutdown of Breagh has been completed successfully and that
the field continues its strong operational performance. The
reduction in forecast Breagh capex is excellent news as it will
facilitate a debt-based refinancing of the Company, on which we are
making good progress. In parallel, we are continuing with our
efforts to seek a corporate sale or merger of Sterling, or possibly
a sale of 10 to 15 percent the Breagh field, and in this regard we
expect to announce the appointment of a strategic financial advisor
shortly."
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) 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 addition, statements relating to expected
production, reserves, costs and valuation are deemed to be
forward-looking statements as they involve the implied assessment,
based on certain estimates and assumptions that the reserves
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.