TIDMSEY
RNS Number : 8653Z
Sterling Energy PLC
20 March 2017
20 March 2017
STERLING ENERGY PLC
ANNUAL RESULTS FOR THE YEARED 31 DECEMBER 2016
Sterling Energy plc is today issuing its preliminary results for
the year ended 31 December 2016.
OVERVIEW
Sterling Energy plc ('Sterling' or the 'Company'), together with
its subsidiary undertakings (the 'Group'), is an upstream oil and
gas company listed on the AIM market of the London Stock Exchange.
The Company is an experienced operator of international exploration
and production licences, with a primary geographic focus on Africa.
The Group has high potential exploration projects in Mauritania and
Somaliland together with a production and royalty interest in
Mauritania. The Company has an active strategy to deliver
shareholder value through disciplined, material exploration and
production projects; leveraging the Company's African experience,
with a renewed emphasis on securing near term cash flow generative
opportunities.
2016 SUMMARY
-- Production, net to the Company from the Chinguetti field
(including royalty barrels), averaged 279 barrels of oil per day
('bopd') (2015: 310 bopd).
-- Adjusted Earnings before Interest, Tax, Depreciation,
Amortisation and Exploration Expense ('EBITDAX') loss for the Group
of $3.1 million (2015: $6.3 million loss).
-- C-3 block, Mauritania, exit (40.5% working interest) in March 2016.
-- Ambilobe block, Madagascar, exit (50% working interest and Operator) in May 2016.
-- Ntem Concession, Cameroon, exit (100% working interest and Operator) in December 2016.
-- Working with all Chinguetti oil field stakeholders on a safe,
cost-effective and technically robust decommissioning and
abandonment plan ('A&D plan'), to commence in 2017.
-- Odewayne block, Somaliland, 2D seismic campaign to commence in Q2 2017.
-- Cash resources net to the Group at 31 December 2016 of $88.1 million (2015: $97.6 million).
-- The Group remains debt free, with cash resources
significantly in excess of all outstanding firm commitments.
-- Ongoing focus on capital discipline, cash G&A expenses
reduced by approximately 20% with continued reductions in 2017.
-- Continued merger and acquisition ('M&A') mandate for
transformational growth (asset and corporate options).
For further information contact:
Sterling Energy plc +44 (0) 20 7405 4133
Eskil Jersing, Chief Executive Officer
Michael Kroupeev, Chairman
Peel Hunt LLP +44 20 7418 8900
Richard Crichton
Ross Allister
www.sterlingenergyplc.com Ticker Symbol: SEY
CHAIRMAN'S STATEMENT
The severe decline in the global oil price reached its lowest
point during January 2016 when Brent crude reached $26 a barrel.
During 2016 the price improved ending at $54 a barrel reversing the
downward trend experienced in 2015. It appears therefore that the
very low, longer downturn predicted has been partially reversed.
Despite improvements to the oil price, the E&P sector continues
to be adversely affected by projects being delayed and exploration
being deferred or cancelled. As my predecessor observed last year
many outside of our sector have benefitted from the lower cost of
energy; however, inside the upstream oil and gas sector we have
seen a significant slowdown in activity coupled with a shift away
from exploration.
As reported this decline in the oil price has forced us to
review our business model. Both the lack of farm-in appetite on the
part of the larger oil companies to fund expensive exploration
activities and the lack of appetite in the capital markets for
funding appraisal projects, let alone funding exploration, has set
us on a much narrower strategy where as a first step in our review
cost saving and preservation of cash resources is our paramount
objective. In addition to that ongoing process, we have reviewed
our business model in light of the changes in market conditions and
we are looking to invest in a more balanced cash flow generating
portfolio.
We have also continued with our portfolio realignment efforts,
relinquishing exploration assets with limited near to mid-term
value triggers or monetisation options (at little or no cost).
Sterling has successfully executed this re-alignment at minimal
cost to the Company. We expect to see activity on both the
Somaliland Odewayne block in 2017 and Mauritania C-10 exploration
block in 2018. In addition, the Company continues to actively
investigate possible acquisition or merger opportunities which may
bring transformational growth and help deliver a more balanced cash
flow generating portfolio.
Our financial interest in the Chinguetti oil field in Mauritania
is loss making and we expect production to cease in 2017. We are
therefore concentrating our efforts in determining the extent of
our contingent financial liability for decommissioning and
abandonment of the field.
In terms of cost saving initiatives, the Company has been
working to reduce the Group's administrative expenses in reaction
to external adverse market conditions. These efforts have, over the
last year, materially reduced the Group's wages and salary
expenses. A reduction in office floor space is also scheduled and
we are committed to further material reduction in costs.
Financial
The Group had cash resources of $88.1 million at the end of 2016
and we remain free of debt. Our work programme for 2017 is fully
funded and we have resources available to progress both our
existing portfolio and add new venture activity in the event that
such a venture presents itself and meets with our stricter
investment criteria.
Board and changes
In the last quarter of 2016 three members of the Board resigned
due to strategic differences on the future direction of the
Company. Post the year end two new directors were appointed, namely
Ilya Belyaev and Leo Koot. Mr Belyaev is a representative of one of
our shareholders who brings valuable financial and entrepreneurial
experience, while Mr Koot is an experienced oil and gas
professional and we will benefit from his considerable industry
experience. Also in 2017, I had the honour of being appointed as
your Chairman, a role which I will faithfully serve in the interest
of all shareholders. Eskil Jersing, our CEO, continues to serve on
the Board.
Outlook for 2017 and beyond
While the global oil price has seen a marked and what appears to
be a sustainable recovery, it is very unlikely that in the near
term this will impact positively on the industry or investor
appetite for exploration assets. We shall pursue our new business
model cautiously, preserving resources in anticipation of a
recovery in market conditions and investor sentiment towards active
exploration driven strategies. Whilst we wait for this recovery, we
will continue to actively investigate possible acquisition or
merger opportunities, to deliver a more balanced, revenue focused
portfolio of assets.
I would like to thank all our stakeholders for their continuing
support and all of our management and staff for their diligent
efforts during 2016.
Michael Kroupeev - Chairman
CHIEF EXECUTIVE'S REVIEW
Market landscape
The previous 12 months have clearly demonstrated that the
prolonged commodity downturn will be the new normal, despite the
slight respite from November's OPEC agreement boosting prices to
above $50/bbl. The fundamentals of supply and demand continue to
set the cost basis under which our industry operates.
Pure exploration driven activity continues to decline, with a
renewed focus on lower risk infrastructure led drilling and
hydrocarbon reserves conversion from contingent to firm. Whilst
global upstream spending outlook is improving, capital spending in
2017 is still forecast to be approximately 40% lower than 2014, at
ca. $450 billion per Wood Mackenzie. Governments and resource
holders will need to continue the momentum in improving fiscal
terms across the value lifecycle in order to attract investment.
The forward view on oil prices suggests we will stay within a
$50-$70 per barrel band through to 2020.
This backdrop imparts the need for acute focus on fiscal
discipline, on those top quartile projects that deliver robust
returns at the lower end of that price band, and as a consequence
most mergers and acquisition activity is directed to lower cost,
fast response projects.
The service cost deflation (approximately 20-30%) over the last
few years appears to be reducing with some jurisdictions now seeing
small cost increases. Despite this, the opportunity landscape
continues to favour those with access to capital, operating cost
advantages and flexibility to scale back, with deferred capital
outlay as prices continue to stay low.
Refreshed board, shareholder alignment and strategy
Sterling has continued to proactively manage our legacy
exploration portfolio by exiting from our C-3, Ntem and Ambilobe
assets; all viewed as having no realistic chance of monetisation,
or limited risked success potential in the near to mid-term.
Revenue from our Chinguetti oil field Funding and Royalty
Agreements will come to end, with cessation of production in 2017.
In response, our efforts continue to be focused on limiting our
Chinguetti liability exposure and repositioning the Company to
source and execute the acquisition of a material M&A led cash
flow generating asset.
Through the last year, we have also seen a governance
transition, with our majority shareholders Waterford Finance and
Investment Limited ('Waterford') and Mistyvale, requesting seats on
the Board to ensure a fully aligned forward strategy. In May 2016
Alastair Beardsall retired and was replaced by Nick Clayton in the
position of non-executive Chairman. Additionally, Michael Kroupeev
was appointed as a non-executive Director.
In October 2016, Nick Clayton, together with Keith Henry and
Malcolm Pattinson, resigned from the Board citing strategic
differences on the future direction of the Company.
Sterling remains unique in the smaller E&P sector, with a
strong cash position from which to leverage. However, given our
loss of Chinguetti revenue and external market conditions, we have
continued on a path of prudent cash preservation. Since 2015, we
have undertaken a number of initiatives to reduce our costs, with
wages and salaries reducing by 23%, leaving our group
administrative overhead at approximately $2.0 million. This has
primarily been delivered through a shift in our capability set and
resources related to exiting of non-core assets to better fit our
strategic mandate. These efforts continue and will be regularly
monitored into 2017, with amongst others, plans to move to smaller
serviced office space.
Asset activity
The Group has an economic interest in the offshore Chinguetti
oil field in Mauritania via the Funding and Royalty Agreements,
amounting to ca. 9.5% of cumulative production. Revenues from
Chinguetti since late 2014 have been insufficient to cover ongoing
operational costs and thus Sterling's administrative overhead
costs. The Joint Venture ('JV') participants, led by the operator
PC Mauritania 1 PTY LTD ('Petronas') and relevant stakeholders are
collectively working towards cessation of production in 2017, with
the implementation of a safe, compliant and cost-effective A&D
plan. The A&D plan and associated Environmental Impact
Statement ('EIS') both lie with the Government of Mauritania for
final approval.
On the C-10 block in Mauritania, we continue to work diligently
with the operator Tullow Mauritania Limited ('Tullow Oil') and with
Société Mauritanienne Des Hydrocarbures et de Patrimoine Minier
('SMHPM'), to mature a top ranking drill ready prospect suitable
for drilling in 2018. We maintain the view that the world class gas
discoveries made by Kosmos on the Mauritania - Senegal border
further emphasise the infancy and potential upside of the analogous
hydrocarbon plays in C-10, with flexible exit options for Sterling.
This has further been validated by BP's recent ca. $1 billion
strategic entry to the basin; in addition to the intention to drill
up to 4 high impact exploration wells in 2017, some of which will
target material oil prone prospects close to the C-10 block.
On the Odewayne licence in Somaliland, a regional 2D seismic
acquisition program due to commence Q2 2017 will help de-risk this
vast frontier exploration block. Sterling is fully carried by the
operator Genel Energy for all exploration costs during the current
third and subsequent fourth exploration period, covering the 2D
seismic and the first exploration well commitment. In August 2016,
we received a further 2 year extension on the current third
exploration period of the block.
Over the year we undertook disciplined exits from three assets
at limited cost. All assets were seen as having low chances of
being monetised in the near to mid-term and as such did not fit our
revised strategic mandate. We completed our withdrawal from the C-3
block in Mauritania in March 2016, assigning our entire 40.5%
participating interest to Tullow Oil; as a result we had no
additional costs associated with the withdrawal.
Following a full interpretation and evaluation of our 2015
operated 3D survey on the Ambilobe block in Madagascar we completed
our withdrawal in May 2016, without material cost. Prior to that, I
am pleased that we maintained our corporate social responsibility
('CSR') activities by successfully completing the Nosy Be and
Ambanja fish market rehabilitation and Beramanja school
projects.
Finally on the Ntem block in Cameroon we exited in December
2016, as we were unable to reach an acceptable solution with the
resource holder to advance operational activities on the block.
Outlook
Sterling is fully funded for all of our asset level commitments
and liabilities through a strong balance sheet with cash resources
of $88.1 million as at 31 December 2016.
With regards to the Sterling portfolio, we have the potential to
deliver material value to our shareholders in the Somaliland and
Mauritania assets over the next few years. We look forward towards
the completion and interpretation of the Somaliland regional 2D
seismic survey in the second half of 2017 and the C-10 JV drilling
a material exploration well in 2018.
On the growth front, we restructured our capability set in 2016
to focus on M&A led due diligence efforts. As a result we
undertook lengthy evaluations on a number of projects. We will
continue on this M&A led mandate in 2017, with the intent of
originating, delivering and executing on a transformative asset or
corporate solution.
I am very pleased that as of January 2017, with Michael Kroupeev
as our new Chairman along with Ilya Belyaev and Leo Koot joining
the Board, we now have a highly aligned team looking to directly
deliver on a refreshed shareholder driven mandate.
Finally, on behalf of the Company I would like to thank Alastair
Beardsall, Nick Clayton, Keith Henry and Malcolm Pattinson for all
their contributions to the Company since 2009; we wish them every
success in their various endeavours.
Eskil Jersing - Chief Executive Officer
OPERATIONS REVIEW
The Group's African focused asset portfolio provides exposure to
exploration opportunities within under-explored or frontier basins
that have the potential to deliver material hydrocarbon reserves.
These areas have historically seen little activity but offer
significant encouragement for the presence of commercially viable,
working hydrocarbon systems.
MAURITANIA
Chinguetti (ca. 9.5% of cumulative production through the
Funding Agreement and a 6% Royalty Agreement derived from Premier's
WI). The Group has economic interests in the Chinguetti oil field
through a Funding Agreement with SMHPM, Mauritania's national oil
company, and a Royalty Agreement with Premier Oil ('Premier'). The
C-10 block offers potential exposure to a world class LNG and
possibly liquids prone play, proved up by Kosmos in the adjacent
outboard acreage.
Chinguetti Overview
Gross production for the Chinguetti oil field during 2016
averaged 4,549 bopd (2015: 5,083 bopd). Average production net to
the Group, from the Group's economic interests during 2016, was 279
bopd (2015: 310 bopd). Production was in steady decline throughout
the year, reflecting the maturity of the field, but revenues
benefited from a reduction in the Floating Production, Storage and
Offtake ('FPSO') base day rate, and a field wide cost saving
exercise implemented by the Operator.
The Group estimates that at the end of 2016, net entitlement 2P
reserves stood at 73k barrels of oil equivalent ('boe') (2015: 173k
boe).
Outlook
The Chinguetti JV (Petronas, Tullow Oil, SMHPM, Premier, Kufpec)
are evaluating how best to manage the Chinguetti field with the
current end of field life challenges. Discussions continue to be
held with the Government of Mauritania and relevant stakeholders on
how best to both manage current operations and agree on a plan for
a safe, cost-effective and technically robust decommissioning and
abandonment phase.
In 2015, the Group enlarged its Mauritanian footprint through
entering into two offshore exploration blocks, C-3 and C-10. The
rationale underlying entry was that the acreage offered low cost
ground floor exposure to material exploration upside in a
re-emerging petroleum province. This was subsequently validated
with recent world class LNG scale discoveries by Kosmos. Following
the exit from C-3 in early 2016, efforts have been focused on
maturing the prospect inventory for drilling on the C-10 block.
C-10 (WI 13.5%) Exploration block
Overview
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, and wholly surround the Chinguetti field. The
C-10 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
SEML 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.
The block is almost fully covered by numerous legacy 3D seismic
surveys and lies within a proven petroleum basin, offering exposure
to multiple play-types from under-explored Jurassic and lower
Cretaceous shelfal carbonates to Cretaceous and Tertiary clastic
plays. Within the block confines, a successful exploration campaign
in 2000-03 targeting the Miocene play and yielded four oil and gas
discoveries, including the Chinguetti oil field.
Since 2014, Kosmos Energy has discovered and appraised in deep
water block C-8 immediately outboard of C-10, several world class
LNG scale gas discoveries of Albian to Cenomanian age, with the
Tortue West (Ahmeyim) structure alone reported to have Pmean gas
resources of ca.15 Tcf. In 2017, Kosmos and new partner BP will
continue exploration within the Cenomanian/Albian play with a focus
on proving an oil fairway adjacent to the northwestern boundary of
the C-10 block. Further south in Senegal, the Albian clastic shelf
margin play has also been successful with commercial oil and gas
discovered at the SNE field, currently being appraised with current
2C in place resources of more than 2.7 billion barrels and the
ongoing programme will further define the recovery potential of the
field per Cairn Energy's press release in March 2017.
Outlook
Following entry into the C-10 block in mid-2015, Sterling and
its JV partners have been actively maturing and ranking the
technical description of the play, prospect and lead portfolio on
the 3D seismic dataset. The JV continues to work towards selecting
a prospect for drilling to meet the minimum work obligations.
Tullow Oil and the JV are in discussions with SMHPM and the
Ministry with regards to the appropriate future path on the C-10
block, with a view to securing an extension and recognising that a
well will not be drilled prior to the current Phase 2 expiry in
November 2017.
Should the JV not fulfil the minimum work obligations, the gross
liability owing to the Mauritanian government would be $7.5 million
($1.1 million net to SEML). 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.
C-3 Exploration block (Relinquished 2016)
Overview
Following the submission of a withdrawal notice in January 2016
to Tullow Oil and SMHPM, the completion of Sterling's withdrawal
from the C-3 block became effective in March 2016.
Sterling entered into the C-3 block in February 2015 following
extensive re-evaluation of exploration data along the margin post
the 2014 Cairn SNE-1 discovery in Senegal to the south. This
highlighted the possible extension of an Albian clastic play into
PSC C-3.
The subsequent C-3 block exit decision was data driven and based
on disciplined technical and commercial rationale. A full technical
evaluation of the acreage was completed in early Q1 2016 on the
newly acquired 2D seismic data. This enabled Sterling to take a
technical view that the new data had insufficiently de-risked the
remaining play and lead potential to justify committing to a 3D
seismic survey and the drilling of 1 well.
SOMALILAND
The onshore basins of Somaliland offer one of the last
opportunities to target an undrilled Mesozoic basin in Africa. The
Odewayne block is ideally located to explore this play covering a
large area of a completely unexplored onshore rift basin.
Geophysical data and geological field studies indicate that the
sedimentary basin underlying the block has encouraging evidence of
a working hydrocarbon system. In 2016 the JV, in collaboration with
the Ministry of Energy and Mines has been progressing towards the
acquisition of the first seismic data in the region.
Odewayne (WI 40%) Exploration block
Overview
This large, unexplored frontier acreage position comprises an
area of 22,840km(2) . Exploration activity 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 provides strong encouragement for a deep
sedimentary basin and has highlighted the presence of oil seeps at
surface, suggesting that a working hydrocarbon system exists.
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 in 2016 by two years to 2 November 2018. The minimum work
obligation during the optional 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 acquired an original 10% from Petrosoma Limited
('Petrosoma') in November 2013 and an additional 30% from Jacka
Resources Somaliland Limited ('Jacka') in two transactions during
2014. In aggregate, as consideration, SE(EA)L has paid $17.0
million to date and a further $4.0 million is to be paid in stages
to Petrosoma as and when certain operational milestones are
reached, with a further $ 4.0 million due on drilling of an
exploration well.
SE(EA)L is fully carried by Genel Energy for its share of the
costs of all exploration activities during the Third and Fourth
Periods of the PSA.
Outlook
In 2016 the Ministry of Energy and Mines progressed a directed
speculative survey in Somaliland to allow the acquisition of 2D
seismic data. The project is led by the Ministry who in Q4 2016
signed a contract with BGP (a Chinese geophysical and drilling
contractor) to acquire seismic data over a number of blocks,
including Odewayne. The data on Odewayne is scheduled to be
acquired from Q2 2017, is intended to fulfil (at least) the minimum
work obligation and will be the first seismic data acquired on the
block.
MADAGASCAR
Ambilobe Exploration block (Relinquished 2016)
Overview
Following the acquisition and interpretation of 3D seismic data
on the Ambilobe block in 2015 and 2016, Sterling issued a notice of
withdrawal from the Ambilobe block in April 2016 to its JV partner
Pura Vida Mauritius ('Pura Vida'). In May 2016 the withdrawal was
completed prior to the end of the second phase of the PSC with all
commitments met and no material surrender costs.
CAMEROON
Ntem Exploration block (Relinquished 2016)
Overview
The Company issued a notice of surrender in relation to the Ntem
Concession, offshore Cameroon in 2016 which became effective in
December 2016. The Company did not incur any material costs
associated with the surrender.
Matthew Bowyer - Subsurface Manager
FINANCIAL REVIEW
SELECTED FINANCIAL DATA
2016 2015
Chinguetti production bopd 279 310
Year end 2P reserves kboe 73 173
Revenue $million 4.8 5.0
Adjusted EBITDAX (1) $million (3.1) (6.3)
Loss after tax $million (8.5) (16.0)
Net cash investment in oil
& gas assets $million 1.1 4.8
Year-end cash net to the
Group $million 88.1 97.6
Average realised oil price $/bbl 39.8 50.3
Total cash operating costs
(produced) $/bbl 64.6 75.3
Year-end share price Pence 15.0 14.5
Share price change % 3 (26)
Debt $million - -
(1) as defined within the definitions and glossary of terms
Revenue and cost of sales
2016 Chinguetti production, net to the Group, averaged 279 bopd
(including royalty barrels), a decrease of 10% from the 310 bopd
averaged in 2015; the reduced volumes reflect the lower oil price
realised at the start of 2016 along with the expected decline in
production for the field.
Gross volumes lifted and sold during the year from the
Chinguetti oil field were up by 49% to 2.2 million barrels over
four cargo liftings (2015: 1.5 million barrels over three cargo
liftings); whilst the main increase in gross volumes is as a result
of the extra lift, on average cargo volumes were up by 12% in
2016.
The achieved lifting cost per barrel (excluding the onerous
contract provision) has decreased in 2016 by $44.9 to $49.3 (2015:
$94.2).
Cost of sales for the Group for 2016 (excluding the onerous
contract provision) decreased by $3.5 million, due in part to a
reduction in the FPSO base day rates and a field wide cost saving
exercise implemented by the Operator.
A summary of revenue, cost of sales and lifting volumes are
provided below:
2016 2015
Liftings (bbls)(1) 121,031 99,948
Revenue ($million) 4.8 5.0
Revenue / bbl ($) 39.8 50.3
Lifting cost ($million)(2) (6.0) (9.4)
Lifting cost / bbl ($)(2) (49.3) (94.2)
(1) Net Sterling production during the year totalled 101,939
(2015: 113,085)
(2) Excluding onerous contract provision
Loss for year
The 2016 loss totalled $8.5 million (2015: loss $16.0
million).
2016
$ million
Loss for year 2015 (16.0)
Other obligations (2015) 3.7
Impairment of Ntem (2015) 8.2
Chinguetti cessation costs (2015) (2.2)
Impairment of Ambilobe (2016) (3.8)
Impairment of C-3 (2016) (3.6)
Decrease in revenue (0.2)
Decrease in cost of sales 3.9
Decrease in G&A and pre licence 0.5
Increase in net finance income 1.0
Loss for year 2016 (8.5)
----------
During 2016, the Group fully impaired the Ambilobe block in
Madagascar ($3.8 million) and the C-3 block in Mauritania ($3.6
million), resulting in a total charge of $7.4 million.
Group administrative overhead decreased during the year to $2.0
million (2015: $2.3 million). Included within this charge is $73k
(2015: $297k) with respect to share-based payment charges. The
continued reduction in the Group's administrative overhead is in
reaction to both external market conditions and the change in
strategic mandate. In 2016 the Group's wages and salaries have
reduced by 23%.
In 2016, a portion of the Group's staff costs and associated
overheads have been recharged to JV partners ($87k), expensed as
pre-licence expenditure ($1.8 million), or capitalised ($785k)
where they are directly assigned to capital projects. This totals
$2.7 million in the year (2015: $3.6 million).
A summary of these movements is provided below.
2016 2015
$ million $ million
Group administrative overhead (page 11) (2.0) (2.3)
Costs capitalised (0.8) (1.1)
Costs recharged to JV partners (0.1) (0.5)
Pre-licence expenditure (1.8) (2.0)
----------------------------------------- ---------- ----------
(2.7) (3.6)
Share based payment expense 0.1 0.3
Other non-cash expenditure - 0.1
Group cash G&A expense (4.6) (5.5)
Adjusted EBITDAX and net loss
Group adjusted EBITDAX (as defined within the definitions and
glossary of terms) loss totalled $3.1 million (2015: $6.3 million
loss).
Net loss after tax totalled $8.5 million (2015: loss $16.0
million). The basic loss per share was $0.04 per share (2015: loss
$0.07 per share).
Interest received and finance expenses result in a net income of
$290k (2015: $712k expense) which includes exchange losses of $231k
(2015: $89k) on GBP cash deposits held at 31 December 2016 reported
in US dollars, a non-cash finance expense of $149k (2015: $1.0
million) relating to the unwinding of the Chinguetti
decommissioning provision (see Note 5 on pages 16 and 17), interest
received totalling $683k (2015: $356k) and other finance expenses
totalling $14k (2015: $13k).
No dividend is proposed to be paid for the year ended 31
December 2016 (2015: $nil).
Cash flow
Net Group cash outflow generated from operating activities was
$8.8 million (2015: $4.9 million outflow) a full reconciliation of
which is provided in the Consolidated Statement of Cash Flows.
Net cash investments in oil and gas assets totalled $1.1 million
(2015: $4.8 million) and are summarised below:
2016 2015
$ million $ million
Mauritania 1.0 4.0
Somaliland - 0.1
Madagascar 0.1 0.6
Cameroon - 0.1
1.1 4.8
========== ==========
Statement of financial position
At the year end, cash and cash equivalents totalled $88.1
million (2015: $98.7 million of which $1.1 million were held on
behalf of partners, leaving a cash balance of $97.6 million).
At the end of 2016, net assets/total equity stood at $78.4
million (2015: $86.8 million), and non-current assets totalled
$18.9 million (2015: $25.1 million). Net current assets reduced to
$74.0 million (2015: $94.1 million) due mainly to the $18.1 million
decommissioning provision movement from non-current to current
liabilities.
The Group's Chinguetti decommissioning provision (current and
non-current) decreased during the year by $939k to $31.5 million
(2015: $32.4 million) reflecting the Group's estimate of gross
abandonment and decommissioning costs based on a draft A&D plan
presented to the JV by the operator and further provided to the
Group by SMHPM (see Note 5 on pages 16 and 17).
Cautionary statement
This financial report contains certain forward-looking
statements that are subject to the usual risk factors and
uncertainties associated with the oil and gas exploration and
production business. Whilst the Directors believe the expectation
reflected herein to be reasonable in light of the information
available up to the time of their approval of this report, the
actual outcome may be materially different owing to factors either
beyond the Group's control or otherwise within the Group's control
but, for example, owing to a change of plan or strategy.
Accordingly, no reliance may be placed on the forward-looking
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
31st December 31st December
Note 2016 2015
$000 $000
Revenue 4,815 5,031
Cost of sales (2,262) (6,028)
Gross profit/(loss) 2,553 (997)
Other administrative expenses (2,045) (2,305)
Impairment of oil and gas
exploration assets 4 (7,375) (8,183)
Pre-licence costs (1,951) (2,212)
Onerous contract 5 - (3,700)
Chinguetti cessation costs - 2,159
---------------------------------- ----- -------------- --------------
Total administrative expenses (11,371) (14,241)
Loss from operations (8,818) (15,238)
Finance income 683 356
Finance expense (394) (1,068)
Loss before tax (8,529) (15,950)
Tax - -
Loss for the year attributable
to the owners of the parent (8,529) (15,950)
Other comprehensive income
- items to be reclassified
to the income statement
in
subsequent periods
Currency translation adjustments 50 6
Total other comprehensive
income for the year 50 6
Total comprehensive expense
for the year attributable
to the owners of the parent (8,479) (15,944)
-------------- --------------
Basic loss per share (US
cents) (3.88) (7.25)
Diluted loss per share (US
cents) (3.88) (7.25)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31st December 31st December
Note 2016 2015
$000 $000
Non-current assets
Intangible exploration and
evaluation assets 4 18,846 25,074
Property, plant and equipment 17 34
-------------- --------------
18,863 25,108
-------------- --------------
Current assets
Inventories 1,948 1,320
Trade and other receivables 6,540 550
Cash and cash equivalents 88,058 98,653
-------------- --------------
96,546 100,523
-------------- --------------
Total assets 115,409 125,631
============== ==============
Equity
Share capital 149,014 149,014
Share premium 378,863 378,863
Currency translation reserve (169) (219)
Retained deficit (449,318) (440,862)
-------------- --------------
Total equity 78,390 86,796
-------------- --------------
Non-current liabilities
Long-term provisions 5 14,472 32,395
-------------- --------------
14,472 32,395
-------------- --------------
Current liabilities
Trade and other payables 1,363 2,740
Short-term provisions 5 21,184 3,700
-------------- --------------
22,547 6,440
-------------- --------------
Total liabilities 37,019 38,835
-------------- --------------
Total equity and liabilities 115,409 125,631
============== ==============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Currency
Share Share translation Retained
deficit
capital premium reserve (1) Total
$000 $000 $000 $000 $000
At 1 January 2015 149,014 378,863 (225) (425,209) 102,443
-------- -------- ------------ --------------- ----------
Loss for the year - - - (15,950) (15,950)
Currency translation
adjustments - - 6 - 6
-------- --------
Total comprehensive
expense for the year
attributable to the
owners of the parent - - 6 (15,950) (15,944)
Share option charge
for the year - - - 297 297
At 31 December
2015 149,014 378,863 (219) (440,862) 86,796
-------- -------- ------------ --------------- ----------
Loss for the year - - - (8,529) (8,529)
Currency translation
adjustments - - 50 - 50
-------- --------
Total comprehensive
expense for the year
attributable to the
owners of the parent - - 50 (8,529) (8,479)
Share option charge
for the year - - - 73 73
At 31 December
2016 149,014 378,863 (169) (449,318) 78,390
======== ======== ============ =============== ==========
(1) The share option reserve has been included within the
retained deficit reserve and is a non-distributable reserve.
CONSOLIDATED STATEMENT OF CASH FLOWS
Note 2016 2015
$000 $000
Operating activities:
Loss before tax (8,529) (15,950)
Depreciation, depletion
& amortisation 32 54
Impairment expense 4 7,375 8,183
Chinguetti cessation costs - (2,159)
Onerous provision (3,700) 310
Finance income and gains (683) (356)
Finance expense and losses 380 1,056
Share-based payment charge 75 297
--------- ---------
Operating cash flow prior
to working capital movements (5,050) (8,565)
(Increase)/decrease in inventories (628) 903
(Increase)/decrease in trade
and other receivables (5,990) 2,744
Decrease in trade and other
payables (1,377) (2)
Increase in short-term provisions 4,200 -
(8,845) (4,920)
Cash outflow from continuing
operations (8,835) (4,877)
Cash outflow from discontinued
operations (10) (43)
Net cash flow (used in)/generated
from operating activities (8,845) (4,920)
Investing activities
Interest received 683 356
Purchase of property, plant
and equipment (15) (16)
Exploration and evaluation
costs (1,147) (4,831)
Decommissioning costs 5 (1,088) -
Net cash used in investing
activities (1,567) (4,491)
Net decrease in cash and
cash equivalents (10,412) (9,411)
Cash and cash equivalents
at beginning of year 98,653 108,148
Effect of foreign exchange
rate changes (183) (84)
Cash and cash equivalents
at end of year 88,058 98,653
========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
The preliminary results announcement is for the year ended 31
December 2016.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2016
or 2015, but is derived from those accounts. Statutory accounts for
2015 have been delivered to the Registrar of Companies and those
for 2016 will be delivered following the Company's Annual General
Meeting. The auditors have reported on those accounts; their
reports were unqualified, did not draw attention to any matters by
way of emphasis without qualifying their report and did not contain
statements under s498(2) or (3) Companies Act 2006.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs.
The Annual Report and Accounts and the notice for the Company's
Annual General meeting, which is to be held at 11.00 a.m. on 25
April 2017, will be posted to Shareholders on or about 30 March
2017.
2. Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Operations Review. The financial position of the
Group, its cash flows and liquidity position are described in the
Financial Review.
The Group has sufficient cash resources for its working capital
needs and its committed capital expenditure programme at least for
the next 12 months. As a consequence, the Directors believe that
the Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern
basis of accounting in preparing the annual financial
statements.
3. Operating segments
Middle East
Africa (Discontinued) Total
2016 2015 2016 2015 2016 2015
$000 $000 $000 $000 $000 $000
Statement of
comprehensive
income
Revenue 4,815 5,031 - - 4,815 5,031
Cost of sales (2,262) (6,028) - - (2,262) (6,028)
-------- --------- -------- ------- -------- ------------------
Gross profit/(loss) 2,553 (997) - - 2,553 (997)
Impairment Note
of E&E assets 4 (7,375) (8,183) - - (7,375) (8,183)
Accruals release - - - 5 - 5
Pre-licence
costs (1,951) (2,212) - - (1,951) (2,212)
Onerous contract - (3,700) - - - (3,700)
Chinguetti
cessation costs - 2,159 - - - 2,159
-------- --------- -------- ------- -------- ------------------
Segment result (6,773) (12,933) - 5 (6,773) (12,928)
Unallocated
corporate expenses (2,045) (2,310)
-------- ------------------
Loss from operations (8,818) (15,238)
Finance income 683 356
Finance expense (394) (1,068)
-------- ------------------
Loss before
tax (8,529) (15,950)
Tax - -
Loss attributable
to owners of
the parent (8,529) (15,950)
-------- ------------------
4. Intangible Exploration and Evaluation ("E&E") assets
Group
$000
Net book value at 1 January 2015 28,426
Additions during the year 4,831
Impairment for the year (8,183)
Net book value at 31 December
2015 25,074
--------
Additions during the year 1,147
Impairment for the year (7,375)
Net book value at 31 December
2016 18,846
--------
Impairment for the 2016 refers to the full impairment of the
Ambilobe and C-3 assets (2015: Ntem).
5. Short and Long-term provisions
Short-term provisions are detailed in the table below:
Group
2016 2015
$000 $000
Onerous commitment - 3,700
Decommissioning provision (a) 16,984 -
Odewayne consideration 4,000 -
Other provisions 200 -
21,184 3,700
--------- --------
a) Decommissioning provisions 2016
Group $000
At 1 January -
Transferred from long term provision 18,072
Used (1,088)
16,984
--------
Long-term provisions are detailed in the table
below:
Decommissioning provisions 2016 2015
Group $000 $000
At 1 January 32,395 22,667
Increase in decommissioning provision - 8,762
Unwinding of discount 149 966
Transferred to short term provision (18,072) -
14,472 32,395
--------- --------
6. Subsequent event
No significant subsequent events requiring disclosure or
adjustment have occurred.
DEFINITIONS AND GLOSSARY OF TERMS
$ US dollars
2006 Act the Companies Act 2006, as amended
1P proven reserves (both proved developed reserves + proved
undeveloped reserves).
2D two dimensional
2P 1P (proven reserves) + probable reserves, hence "proved AND
probable."
3D three dimensional
3P the sum of 2P (proven reserves + probable reserves) +
possible reserves, all 3Ps "proven AND probable AND possible."
AIM AIM, a market of the London Stock Exchange
All Staff LTIP the All Staff Long-Term Incentive Plan adopted in
2009
AGM Annual General Meeting
Articles the Articles of Association of the Company
bbl barrel, equivalent to 42 US gallons of fluid
bopd barrel of oil per day
boe barrel of oil equivalent, a measure of the gas component
converted into its equivalence in barrels of oil
Board the Board of Directors of the Company
Combined Code or Code UK Corporate Governance Code
Companies Act the Companies Act (as amended 2006)
Company Sterling Energy plc
CSOP Company Share Option Plan (HMRC approved share option
scheme)
Directors the Directors of the Company
E&P exploration and production
Adjusted EBITDAX earnings before interest, taxation,
depreciation, depletion and amortisation, impairment, share-based
payments, provisions, and pre-licence expenditure
EITI Extractive Industries Transparency Initiative
EUR the total amount of hydrocarbons expected to be produced
from the hydrocarbon accumulation over the life of the project.
Estimated ultimate recovery is synonymous with recoverable resource
and the terms are used interchangeably.
Farm-in & Farm-out a transaction under which one party
(farm-out party) transfers part of its interest to a contract to
another party (farm-in party) in exchange for a consideration which
may comprise the obligation to pay for some of the farm-out party
costs relating to the contract and a cash sum for past costs
incurred by the farm-out party
FA Funding Agreement
FCA Financial Conduct Authority
FPSO Floating, Production, Storage and Offloading vessel
G&G geological and geophysical
GBP pounds sterling
Genel Energy Genel Energy Somaliland Limited
Group the Company and its subsidiary undertakings
HMRC Her Majesty's Revenue and Customs
HMRC Approved Sub-Plan or The HMRC approved sub-plan of the All Staff LTIP
HMRC Sub-Plan
HSSE Health, Safety, Security and Environment
hydrocarbons organic compounds of carbon and hydrogen
IFRS International Financial Reporting Standards
Index FTSE 350 Index
JV joint venture
K thousands
km kilometre(s)
km(2) square kilometre(s)
lead indication of a potential exploration prospect
London Stock Exchange or LSE London Stock Exchange Plc
m metre(s)
mcf thousand cubic feet
NED LTIP non-executive Director Long Term Incentive Plan adopted
in 2009
OECD Organisation for Economic Cooperation and Development
OPU Oil Protection Unit
Ordinary Shares ordinary shares of 40 pence each
P90 the value on a probabilistic distribution which is exceeded
by 90% of the outcomes.
P50 the value on a probabilistic distribution which is exceeded
by 50% of the outcomes. The P50 is also the median value of the
distribution.
P10 the value on a probabilistic distribution which is exceeded
by 10% of the outcomes.
Pmean the average of the values in the probabilistic
distribution between defined 'boundary conditions'. Universally
regarded as the best single value to quote or communicate for any
uncertain distribution of outcomes involved in repeated trial
investigations.
Panel or Takeover Panel the Panel on Takeovers and Mergers
Petroleum oil, gas, condensate and natural gas liquids
Petroleum system geologic components and processes necessary to
generate and store hydrocarbons, including a mature source rock,
migration pathway, reservoir rock, trap and seal.
Petronas PC Mauritania 1 PTY LTD
Petrosoma Petrosoma Limited (JV partner in Somaliland)
Premier Premier Oil PLC
Pre Stack Depth Migration process by which seismic events are
geometrically re-located in space and depth to the location the
event occurred in the subsurface
Prospect an area of exploration in which hydrocarbons have been
predicted to exist in economic quantity. A group of prospects of a
similar nature constitutes a play.
PSA production sharing agreement
PSC production sharing contract
Pura Vida Pura Vida Mauritius
RA Royalty Agreement
Reserves reserves are those quantities of petroleum anticipated
to be commercially recoverable by application of development
projects to known accumulations from a given date forward under
defined conditions. Reserves must satisfy four criteria; they must
be discovered, recoverable, commercial and remaining based on the
development projects applied. Reserves are further categorised in
accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity
and/or characterised by development and production status
Reservoir a porous and permeable rock capable of containing
fluids
Seismic data, obtained using a sound source and receiver, that
is processed to provide a representation of a vertical
cross-section through the subsurface layers
SESP Sterling Energy plc share price
Shares 40p ordinary shares
Shareholders ordinary shareholders of 40p each in the Company
SMHPM Société Mauritanienne Des Hydrocarbures et de Patrimoine
Minier (Mauritania's national oil company)
Subsidiary a subsidiary undertaking as defined in the 2006
Act
Tcf Trillion cubic feet
TSR total shareholder return (End Share Price - Opening Share
Price/Opening Share Price) plus (Sum of Dividends per Share/Opening
Share Price)
Tullow Mauritania Limited Tullow Oil
United Kingdom or UK the United Kingdom of Great Britain and
Northern Ireland
UK Corporate Governance Code Formerly the Combined Code, sets
out standards of good practice in relation to Board leadership and
effectiveness, remuneration, accountability and relations with
shareholders
Waterford Finance and Investment Waterford
Limited
Working Interest or WI a Company's equity interest in a project
before reduction for royalties or production share owed to others
under the applicable fiscal terms
This information is provided by RNS
The company news service from the London Stock Exchange
END
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