TIDMSEY
RNS Number : 0374P
Sterling Energy PLC
14 November 2016
14 November 2016
INTERIM MANAGEMENT STATEMENT
Sterling Energy plc (the 'Company' or 'Sterling') together with
its subsidiary undertakings (the 'Group') is today issuing its
Interim Management Statement and financial results for the third
quarter ended 30 September 2016. All figures are unaudited unless
stated otherwise.
Highlights
-- Production, net to the Company (including royalty barrels)
from the Chinguetti field, averaged 351 barrels of oil per day
('bopd') (Q3 2015: 303 bopd).
-- Adjusted Earnings before Interest, Tax, Depreciation and
Amortisation and Exploration Expense ('EBITDAX') loss for the Group
of $992k (Q3 2015: $2.1 million loss).
-- Loss after tax of $420k (Q3 2015: $1.6 million).
-- Cash (zero debt) as at 30 September 2016 of $91.0 million.
-- Somaliland 2D seismic campaign expected to commence Q2 2017.
-- Efforts to recruit Non Executive Directors following resignations on 13 October.
-- Continued mandate to execute M&A driven transformational
growth (both corporate and at the asset level).
-- Ongoing focus on capital discipline, through G&A cost reductions.
CEO Statement
Subsequent to the end of the third quarter, on 13 October 2016,
the Company announced Nicholas Clayton (Non Executive Chairman),
Keith Henry (Senior Independent Non Executive Director) and Malcolm
Pattinson (Independent Non Executive Director) resigned from the
Board with immediate effect, citing strategic differences on the
future direction of the Company.
The Board currently consists of the CEO, Eskil Jersing, as well
as Michael Kroupeev as a Non Executive Director. Mr Kroupeev is the
representative (and beneficiary) of Waterford Finance, the largest
shareholder (29.9%) in the Company. The Company intends to appoint
appropriately qualified replacement non-executive directors in due
course, consistent with the Company's corporate governance
framework.
On the Chinguetti oil field, we continue to work assiduously
with Société Mauritanienne Des Hydrocarbures et de Patrimoine
Minier ('SMHPM') and relevant stakeholders to ensure that the
Abandonment and Decommissioning ('A&D') project is safe, robust
in implementation and leverages the full benefits of the current
cost deflated landscape. Chinguetti is due to cease production in
2017, with decommissioning operations due to commence shortly
thereafter. The A&D plan currently lies with the Government of
Mauritania for approval. Once fully sanctioned, Sterling will be
able to better inform the market of our net liability exposure for
the decommissioning of this asset.
As mentioned in the Half Year statement on 28 July 2016, we have
continued with our portfolio re-alignment efforts, relinquishing
exploration assets (at little to no cost to Sterling) with limited
near to mid-term value triggers or monetisation options. We intend
to retain and execute operational activity on both the Somaliland
Odewayne and Mauritania C-10 exploration assets in 2017.
Given the aforementioned context and our robust cash position,
the overwhelming focus of the Company has been to continue to
originate, conduct full due diligence and ultimately implement
transformative growth driven M&A projects.
During the last quarter, the Company has been actively involved
and at advanced stages in a number of potential transactions, this
is despite depressed deal volumes across the industry. The Company
remains confident that it can identify and source the right
projects to drive growth and shareholder value.
In terms of cost savings initiatives, the Company has been
working proactively, to reduce the Group's administrative expenses
in reaction to external market conditions. These efforts have, over
the last year, reduced the Group's wages and salary expenses by
ca.40%. Furthermore, we will have a ca.30% reduction in office
(floor space) expenses from Q1 2017. As a result, 2017
administrative expenses are estimated to be ca.28% lower than in
2015 (based on current work programme and budget assumptions).
Looking forward, we intend to appoint a Non Executive Chairman
and new Non Executive Directors as soon as practical and will
continue our focus on limiting liability exposure on Chinguetti,
delivering on our current portfolio and pursuing transformative
growth projects for the Company and it's shareholders.
Mauritania
Chinguetti oil field
The Company has economic interests in the Chinguetti field
through a funding agreement with SMHPM, Mauritania's national oil
company, and a royalty agreement with Premier Oil.
Chinguetti field production, net barrels of oil ('bbls') to the
Group (including royalty bbls), in the period totalled 32,284 bbls
(Q3 2015: 27,904 bbls), an average of 351 barrels of oil per day
('bopd'), compared to 303 bopd for the equivalent period in Q3
2015. The increase in net production is primarily due to an
increase in cost oil barrels attributed under the Funding Agreement
(due to a reduction in operating expenditures), notwithstanding the
consistent Chinguetti field decline curve.
Production from the Chinguetti field is stored on location in
the Berge Helene floating, production storage and offloading vessel
('FPSO'). One cargo lifting was undertaken during the period
totalling 34,167 bbls net (Q3 2015: one lifting totalling 30,789
bbls net).
The Chinguetti JV (Petronas, Tullow Oil, SMHPM, Premier, Kufpec)
is evaluating how best to cease production from the Chinguetti
field, which is expected in 2017, and commence its abandonment and
decommissioning. Discussions continue to be held with the
Government of Mauritania and relevant stakeholders on how best to
execute this project.
PSC C-10 (WI 13.5%) Exploration block
Block C-10 covers an area of approximately 8,025km(2) and lies
in water depths of 50 to 2,400m within the Nouakchott sub-basin,
offshore Mauritania, surrounding the Chinguetti field. The C-10
block Production Sharing Contract ('PSC') is held by the Company's
wholly owned subsidiary Sterling Energy Mauritania Limited ('SEML')
(13.5% working interest), Tullow Oil (76.5% working interest and
operator) and SMHPM (10% working interest). SMHPM is carried by
Sterling and Tullow Oil, pro-rata to their working interests,
during the exploration phases. The PSC is in the second phase of
the exploration period, which is due to expire on 30 November 2017
and has a minimum work obligation of one exploration well. Should
the JV not fulfil the minimum work obligation, the gross liability
owing to the Mauritanian government would be $7.5 million ($1.1
million net to Sterling). Following the completion of Phase 2 the
JV may elect to enter into Phase 3 (with a 3 year term) with a
minimum work obligation of a further two exploration wells.
Following entry into the C-10 block in mid-2015, Sterling and
its JV partners have been maturing and ranking the technical
description of the play, prospect and lead portfolio on the merged,
reprocessed and depth-migrated 3D seismic dataset. The JV is
currently assessing how best to work towards selecting a prospect
for drilling to meet the minimum work obligation.
Somaliland
Odewayne (WI 40%) Exploration block
This large, unexplored frontier onshore acreage position
comprises an area of 22,840km(2) . Exploration to date has been
limited to the acquisition of airborne gravity and magnetic data,
with no seismic coverage and no wells drilled on block. Extensive
geological field data provide strong encouragement for the presence
of a deep sedimentary basin and has highlighted the presence of oil
seeps at the surface indicating a working hydrocarbon system is
present.
The Odewayne production sharing agreement ('PSA') was awarded in
2005, and is in the Third Period with an outstanding minimum work
obligation of 500km of 2D seismic. The Third Period was recently
extended by two years (to 2 November 2018) in order to allow time
for an Oilfield Protection Unit ('OPU') to be established. The
minimum work obligation during the Fourth Period of the PSA (also
extended by 2 years to May 2020) is for 1,000km of 2D seismic and
one exploration well.
The Company's wholly owned subsidiary, Sterling Energy (East
Africa) Limited ('SE(EA)L'), currently holds a 40% working interest
in the PSA.
SE(EA)L is fully carried by Genel Energy for its share of the
costs of all exploration activities during the Third Period and
Fourth Period of the PSA but it retains a contingent liability to
Petrosoma for $8.0 million (net to Sterling) when seismic and well
related operational milestones are reached.
Regional 2D seismic acquisition to cover the Odewayne block (and
satisfying the minimum work obligation for the Third Phase) is
planned as part of a larger government supported multiclient
program with the Odewayne component currently scheduled to commence
in H1 2017.
Cameroon
Ntem (WI 100% & operator) Exploration block
As previously announced, the Company has issued a notice of
surrender in relation to the Ntem Concession, offshore Cameroon.
The surrender will be effective by the end of December 2016. The
Company does not expect to incur any material costs associated with
the surrender.
Financial Position
In the period, the Group reports the following results:
Q3 2016 Q3 2015 FY 2015
(unaudited) (unaudited) (audited)
$ '000 $ '000 $ '000
------------- ------------- -----------
Revenue (1) 1,499 1,414 5,031
Adjusted EBITDAX (2) (992) (2,115) (6,340)
Loss after tax (3) (420) (1,562) (15,950)
Net to Group - cash and cash
equivalents at period end (4) 90,959 99,817 97,524
JV Partner held funds Nil 1,477 1,129
============= ============= ===========
(1) Revenue in the period is derived from income relating to
interests in the Chinguetti field.
(2) Adjusted EBITDAX are (losses)/earnings before interest (plus
other finance income and expense), tax, depreciation, depletion,
amortisation, provisions and write-offs of oil & gas assets.
Adjusted EBITDAX also excludes pre-licence award exploration costs
and share based payments; the latter being a non-cash expense
charged to the income statement under IFRS 2.
(3) Loss after tax in the period of $420k compares to a loss
after tax in Q3 2015 of $1.6 million.
(4) Cash balances at the end of the period totalled $91.0
million (Q3 2015: $101.3 million, including $1.5 million of JV
partner funds). The Group continues to remain debt free.
For further information contact:
Sterling Energy plc +44 (0)20 7405 4133
Eskil Jersing, Chief Executive Officer
www.sterlingenergyplc.com
Peel Hunt LLP +44 (0)20 7418 8900
Richard Crichton
Ross Allister
This information is provided by RNS
The company news service from the London Stock Exchange
END
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