Annual Financial Report

RNS Number : 4285C

Sterling Energy PLC

17 March 2014

 



17 March 2014

 

STERLING ENERGY PLC

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013

Sterling Energy Plc is today issuing its preliminary results for the year ended 31 December 2013.

 

OVERVIEW

Sterling Energy Plc ("Sterling" or the "Company") is an upstream oil and gas company listed on the AIM market of the London Stock Exchange. Sterling is an experienced operator of international licences with a focus on projects in Africa. Sterling has high potential exploration projects in Cameroon, Somaliland and Madagascar, and an interest in production in Mauritania.

2013 SUMMARY

·         Well planning in 2013 culminated in the spud of the Bamboo-1 well on the Ntem Concession, offshore Cameroon, in February 2014.

·         Farmed out 50% of the Ambilobe PSC, offshore north-west Madagascar, in exchange for $15.0 million of 3D seismic data acquisition.

·         Acquired 1,300km of 2D seismic on the Ampasindava block, offshore north-west Madagascar to mature Sifaka, a drill-ready prospect.

·         Acquired a 25% carried interest in Odewayne Block, Somaliland.

·         Received $11.2 million of net cash flow from Chinguetti field operations, offshore Mauritania (2012: $12.7 million).

·         Cash resources at 31 December 2013 of $120.8 million (2012: $120.3 million).

·         Company remains debt free.

For further information contact:

Sterling Energy plc                              [phone]

Alastair Beardsall, Chairman

Liberum Capital Limited                      [phone]

Clayton Bush / Tim Graham

Peel Hunt LLP                                       [phone]

Andy Crossley / Richard Crichton

www.sterlingenergyplc.com                Ticker Symbol: SEY

CHAIRMAN'S STATEMENT

The most exciting event since the 2012 Annual Report is the spud of Bamboo-1, Sterling's first exploration well on the Ntem Concession, offshore Cameroon, targeting a primary objective that may contain some 450 million barrels of oil equivalent. During 2013 Sterling and Murphy Oil, our joint venture partner, finalised the well's location and prepared for the drilling operation. Reprocessing of the 3D seismic dataset for Ntem indicated that significant horizons, with the potential to be hydrocarbon filled, were located in the Ntem block away from the area subject to the overlapping border claims of Cameroon and Equatorial Guinea.

In January 2014 Sterling, Murphy Oil and Société Nationale des Hydrocarbures, the national oil company of Cameroon, agreed to lift force majeure to allow exploration activities to recommence and the Ocean Confidence rig commenced the drilling of Bamboo-1 on 9 February 2014. The well is expected to take up to 70 days to be completed and results will be announced as they become known.

We have acquired a 25% interest in the Odewayne PSA in Somaliland from Jacka Resources and Petrosoma; our share of costs for acquiring 1,500km of 2D seismic and drilling one exploration well are carried by Genel Energy. The Odewayne block covers some 22,000km² of unexplored land on which surface oil seeps indicate an active petroleum system. We look forward to advancing the exploration of this new opportunity during 2014.

In Madagascar we received presidential consent for the agreement with OMNIS, the state oil company, to re-phase the outstanding work commitments under the Ampasindava and Ambilobe licence agreements following the suspension of exploration activities after the change of government in March 2009; both licences now run to September 2015. During the year as progress was made towards the elections that were completed in December, the political outlook and security situation in Madagascar both improved. Exxon resumed operations in late 2013 and acquired some 1,300km of 2D seismic data on the Ampasindava block to enhance the imaging of the Sifaka prospect and possibly mature some other leads into drill-ready prospects, however drilling on Ampasindava is not expected until 2015/16. We also farmed out 50% of the Ambilobe licence to Pura Vida in exchange for $15.0 million of new 3D seismic which Sterling, as operator, expects to acquire in the second half of 2014.

We are cognisant that while Sterling has interests in some very significant projects, we must endeavour to secure new opportunities to broaden our exploration portfolio. We are pleased with new venture progress this year but continue to look both within and beyond our existing geographies for further opportunities, which we believe will deliver real growth and value for our shareholders.

Financial

The Company had cash resources of $120.8 million at the end of 2013, and remains debt free. Our work programme for 2014 is fully funded and we have funds available to progress both our existing portfolio and new venture activity. We remain pleased that the revenue from Chinguetti field operations in Mauritania continued to provide positive cash flow during 2013 in excess of Sterling's administrative costs.

Board Change

In August 2013 Angus MacAskill resigned as Sterling's CEO and stepped down from the Board to seek other opportunities where he could apply his extensive knowledge and experience of engineering in the development and production of oil and gas fields. He joined Sterling in November 2010 when his expertise and attention to detail ensured the very challenging drilling operation on Sangaw North-1 was completed safely. I would like to thank Angus for the tremendous contribution he made across all aspects of Sterling's business during his three year tenure and wish him all the very best for his future challenges.

Outlook for 2014 and beyond

A positive outcome for Bamboo-1, offshore Cameroon will transform the Company; however if the well does not identify commercial hydrocarbons, Sterling has the funds to progress our other projects in Madagascar and Somaliland and to acquire others.

The formation of a democratically elected government will provide greater stability in Madagascar and allow more operational progress to be made on both the Ampasindava and Ambilobe blocks.

Acquisition of 2D seismic in the Odewayne block, Somaliland, will further our understanding of the potential of this vast acreage and may lead to an exploration well, possibly in 2015.

We shall continue to seek new opportunities within and beyond our existing areas of interest and shall only pursue those ventures that we believe will ultimately deliver value for our shareholders. Sterling's strategy is to build shareholder value through participation in the exploration of material prospects and when appropriate the Company will introduce partners, generally through a farm-down process, to pay Sterling's share of the higher costs of exploration operations.

I would like to thank our shareholders for their continuing interest in Sterling and all our staff for their hard work during 2013.

Alastair Beardsall

Chairman

 

OPERATIONS REVIEW

Sterling's varied asset base provides exposure to exploration opportunities within under-explored African basins that have the potential to deliver material hydrocarbon reserves. These frontier and emerging basins have historically seen little activity but offer significant encouragement for the presence of working hydrocarbon systems. Through application of technology and with the benefit of an experienced exploration team, Sterling's focus is on de-risking these basins prior to exploration drilling.

CAMEROON

Cameroon is a proven oil and gas producing province with multiple discoveries made within the shallower water shelf area to the east of Sterling's Ntem concession area and with multiple deeper water discoveries to the north. Ntem is highly prospective deep water acreage in the Douala Basin, one of the least explored Atlantic basins along the West African margin.

Ntem (WI 50%)

Overview

Considerable progress has been made in recent weeks on the Ntem concession, leading to drilling of Bamboo-1, the first exploration well on the area.

This large block is well placed with respect to both Tertiary and Upper Cretaceous plays, both of which have proven successful nearby in Cameroon and in Equatorial Guinea. To the north of the block, Tertiary oil, gas and condensate discoveries made by Noble Energy commenced production in 2011, and Euroil (Bowleven) continue to appraise their discoveries which they are progressing towards development.

In November 2011 Sterling completed a farm-out agreement with Murphy Cameroon Ntem Oil Co. Ltd ("Murphy Oil''), a wholly owned subsidiary of Murphy Oil Corporation under which Murphy Oil was assigned a 50% working interest in and operatorship of the Ntem concession. Sterling retains a 50% non-operated working interest. As consideration, Murphy Oil paid to Sterling a contribution towards past costs and will pay Sterling's share of the costs for the drilling of the Bamboo-1 well.

Operations within the Ntem concession area were suspended in 2005 under the force majeure provisions of the concession owing to an overlapping maritime border claim between Cameroon and Equatorial Guinea. The border dispute remains unresolved but Murphy and Sterling have agreed, together with Société Nationale des Hydrocarbures ("SNH"), the national oil company of Cameroon, to formally lift the declaration of force majeure in order to allow exploration activities to proceed. The current exploration period re-commenced on 22 January 2014 with the minimum work obligation of one exploration well to be drilled in the remaining 15 months.

Current and Future Activity

Murphy Oil has contracted the Ocean Confidence semi-submersible rig which has been mobilised to the Bamboo-1 location in the Ntem Concession and commenced drilling operations on 9 February 2014. This location is outside the disputed area subject to the maritime border claims of Cameroon and Equatorial Guinea, and lies in approximately 1,600m of water. Bamboo-1 is the first well in the concession and is targeting a series of vertically stacked, Cretaceous aged, submarine fans, defined using the extensive 3D seismic dataset, which now covers approximately 70% of the concession area. These target levels exhibit clear fan geometries on the 3D seismic data and are fed by a series of well-defined sediment feeder systems. Sterling estimates that the primary objective may contain mean un-risked, gross prospective resources of 422 million barrels of oil and 170 billion cubic feet of gas, a total of some 450 million barrels of oil equivalent.

SOMALILAND

The onshore basins of Somaliland offer one of the last opportunities to target undrilled Mesozoic rift basins in Africa. The Odewayne Block is well located to explore this play and is a new addition to Sterling's portfolio. Geophysical data and the results of geological fieldwork indicate that the Odewayne basin underlying the Sterling acreage has similar characteristics to producing basins in Yemen.

Odewayne (WI 25%)

Overview

Sterling acquired an interest in the Odewayne Block, located onshore Somaliland, in 2013. This very large unexplored acreage comprises an area of 22,840km². Regional gravity and magnetic data indicate the presence of a prospective basin centred on the block but exploration to date has been very limited with no existing seismic coverage and no wells drilled on block. The Odewayne Production Sharing Agreement ("PSA") was awarded in 2005, and is in the Third Period (expiring November 2014) with an outstanding minimum work obligation of 500km of 2D seismic. The minimum work obligation during the Fourth Period of the PSA (expiring May 2016) is for 1,000km of 2D seismic and one exploration well.

During 2013 an aero-magnetic and gravity survey confirmed the geometry of the broad basin underlying the Odewayne block which is believed to be of Jurassic to Cretaceous age. Fieldwork in the block has highlighted the presence of numerous oil seeps at the surface giving encouragement that a working hydrocarbon system is present in this undrilled basin.

Sterling has completed the purchase of a 25% working interest in the Odewayne block through separate farm-out agreements with Petrosoma Limited ("Petrosoma") for 10% equity and with Jacka Resources Somaliland Limited ("Jacka") for 15% equity post year-end. Under the farm-out agreements with Petrosoma and Jacka, Sterling has paid $2.0 million and $3.0 million respectively with future conditional payments of $8.0 million and $12.0 million (aggregated) respectively payable on the basis of various operational milestones being met.

Sterling is fully carried by Genel Energy Somaliland Limited ("Genel Energy") for the costs of all exploration activities during the Third Period and the Fourth Period of the PSA.

The holders of the PSA are:

·           Genel Energy Somaliland Limited (Operator)          50%

·           Sterling Energy (East Africa) Limited                     25%¹

·           Jacka Resources Somaliland Limited                    15%

·           Petrosoma Limited                                              10%

¹ Effective 27 January 2014

Future Activity

Results from extensive fieldwork will continue to be analysed to enable a greater understanding of the exploration play elements. Whilst seismic operations have temporarily been suspended due to the security environment, the joint venture group are in discussions with the Somaliland Government in order to facilitate a resumption of activities and the joint venture is seeking to deliver the minimum work obligation prior to the expiry of the Third Period in November 2014.

MADAGASCAR

Sterling's Ambilobe and Ampasindava blocks are located in the Ambilobe and Majunga deep water basins, respectively, offshore north-west Madagascar. They are both undrilled but offer large scale exploration potential.

These blocks have also seen significant progress during 2013. Exploration activities had been delayed due to the political instability in the country following a change in government in March 2009 which had not been recognised by the African Union or by the United Nations. In September 2011 the political parties in Madagascar agreed to a process, prepared by the Southern African Development Community, which involved the establishment of a transitional government with the objective of holding democratic elections. Two rounds of presidential elections were duly held in October and December 2013 and were declared by international observers to have been free and fair.

Hery Rajaonarimampianina was inaugurated as the new president of Madagascar in January 2014 and at the time of writing, discussions were continuing on the formation of his new government.

During 2013, the Management Committees for both Blocks, which are chaired by OMNIS, the state regulator, agreed to prolong the current exploration periods of both the Ambilobe and Ampasindava PSCs with each contract having the same remaining duration and obligations in the current exploration periods as existed in March 2009. These agreements were formally ratified by the Government of Madagascar in September 2013 and the current exploration periods of both PSCs now run to September 2015.

Ampasindava (WI 30%)

Overview

The PSC for Ampasindava is in the third phase of the exploration period with a minimum work commitment of one exploration well. The large Sifaka prospect is ready to drill and has been independently estimated to contain gross un-risked best estimate prospective recoverable resources of 1.2 billion barrels (RISC Competent Persons Report, March 2008). With the return of Madagascar to political stability, ExxonMobil Exploration and Production (Northern Madagascar) Limited ("ExxonMobil") (WI 70% and Operator) and Sterling have resumed exploration activities including well planning and a 1,314km 2D seismic acquisition programme was completed on the Ampasindava Block in December 2013. The data will provide improved sub-surface imaging of the Sifaka prospect and potentially mature additional prospects within the Ampasindava Block to drill-ready status. Processing of the new data is in progress.

Following the farm-in by ExxonMobil in 2005, Sterling's costs are carried up to a fixed amount. The cost to drill the Sifaka prospect is estimated to exceed the remaining carry and the Company is conducting a farm-out process to introduce an additional partner and reduce its current working interest in order to cover these costs. It is currently unlikely that an exploration well will commence drilling before 2015.

Sterling estimates that ExxonMobil's remaining carry at the beginning of 2014 is $30.3 million towards the gross cost of exploration activities.

Future Activity

Following acquisition of additional 2D seismic data in 2013 the focus in 2014 will be on processing the new data in conjunction with reprocessing of the existing database, followed by a phase of interpretation. Well planning will continue in order to target drilling in 2015 or 2016.

Ambilobe (WI 50% & Operator)

Overview

The Ambilobe PSC is in the second phase of the exploration period and all work commitments have been fulfilled. A number of Cretaceous and Tertiary leads have been identified, located in both shallow and deep waters, which will require additional seismic data to develop into potential drillable prospects. To that end, Sterling has commenced planning a 3D seismic survey covering approximately 1,250km² which is scheduled to be acquired later in 2014. As there are no outstanding commitments this activity is entirely discretionary.

Sterling signed a farm-out agreement in November 2013 with Pura Vida Mauritius ("Pura Vida") under which Pura Vida has assumed a 50% interest in the PSC. Pura Vida has paid Sterling $1.25 million towards Sterling's past costs, and will pay all costs associated with the planned 3D seismic survey up to a maximum of $15.0 million. Following the farm-out, Sterling retains a 50% interest in the PSC and remains as operator.

Future Activity

Acquisition of new 3D seismic data will be the focus of activity in the Ambilobe block in 2014. With input from new partner Pura Vida, an area of the undrilled Ambilobe basin has been identified as the target for the 3D seismic survey.

MAURITANIA

Chinguetti (Economic Interest via Funding and Royalty Agreements)

Sterling has economic interests in the Chinguetti field through a funding agreement with Société Mauritanienne Des Hydrocarbures ("SMH"), Mauritania's national oil company, and a royalty agreement with Premier Oil. The royalty agreement also covers any commercial development of existing or future discoveries within the PSC-A, PSC-B and PSC C-10 contract areas.

Overview

Gross production during 2013 averaged 6,156 bopd (2012: 6,256 bopd) and the average production net to Sterling, from the Company's economic interests during 2013, was 527 bopd (2012: 523 bopd). Production in the first half of the year was reduced by a scheduled shutdown of 6.5 days for various maintenance activities and the replacement of an anchor mooring chain. A planned sub-sea intervention campaign due in September 2013 was postponed to January 2014 to consolidate maintenance and intervention programmes and minimise production down-time. This was completed, as planned, within 10 days.

Sterling estimates that at the end of 2013, Chinguetti held a remaining 7.8 million barrels of gross proved and probable reserves (2P) that could be accessed via the existing wells. Sterling's net entitlement to 2P reserves is 559k barrels (2012: 475k barrels). The increase in the 2P reserves recognises an updated production profile and a subsequent revision to the anticipated economic field life from May 2017 to December 2017. This has resulted in an impairment reversal of $4.4 million in 2013.

No in-fill drilling or work-over activity took place on the Chinguetti field during 2013.

Future Activity

In the event of any commercial development of existing or future discoveries within the PSC-A, PSC-B and PSC C-10 contract areas, Sterling would be entitled to revenue under its royalty interest agreements with Premier Oil Plc, but would not have any cost obligations.

In November 2012, the Banda gas field, located in PSC-A and operated by Tullow Oil Plc, was declared commercial and it is planned that the field will supply gas to a new local power station, subject to a final investment decision being taken by the Banda joint venture.

Tullow Oil Plc plans to drill an exploration well in the PSC C-10 contract area in the first half of 2014. 

KURDISTAN

Sangaw North PSC (Relinquished)

The Sangaw North block lies in the foothills region of the Zagros fold belt, approximately 140km south east of Erbil, the capital of the Kurdistan region of Iraq.

During 2012, Sterling completed its exploration of the block, having signed the Sangaw North PSC in November 2007, and as has been reported previously, the Company withdrew from the PSC in early 2013. The work commitments under the PSC were fully satisfied at the date of the relinquishment. 

Philip Frank

Exploration Director

 

FINANCIAL REVIEW

SELECTED FINANCIAL DATA

		2013	2012
Chinguetti production 1	bopd	527	523
Year end 2P reserves 1	000 boe	559	475
Revenue	$million	18.4	22.5
EBITDA 1	$million	9.1	11.1
Profit/(loss) after tax	$million	8.3	(12.9)
Net cash investment in oil & gas assets	$million	5.9	4.4
Year end cash (including partner funds)	$million	120.8	120.3
Average realised oil price	$/bbl	101.1	102.6
Total cash operating costs (produced)	$/bbl	36.9	50.8
Year end share price	Pence	43	39
Share price change 1 1 Key performance indicators	%	12	(3)

Highlights

·         Group net profit of $8.3 million in 2013 (2012: loss $12.9 million).

·         Impairment reversal of Chinguetti licence $4.4 million following flatter production decline rate and associated field life extension.

·         Cash balance at year end of $120.8 million (2012: $120.3 million).

·         Average 2013 Chinguetti production 527 bopd (2012: 523 bopd).

·         Debt free throughout 2013.

Revenue and cost of sales

2013 production averaged 527 bopd, including royalty barrels, an increase of 1% from the 523 bopd averaged in 2012, despite a production shutdown for 6.5 days to replace a broken mooring chain.

Gross volumes lifted and sold during the year were down by 17% to 2.2 million barrels (2012: 2.6 million barrels). This reduction in lifting volume is only as a result of timing differences on the Operator's 2013 lifting programme which varies from year-to-year.

The lifting cost per barrel has decreased in 2013 by $1.1 to $53.8 (2012: $54.9). This was principally due to a reduction in direct operating costs during the year following the requirement in 2012 for additional remedial expenditure and the impact of associated short-term interruptions to production.

Currently, all of the Group's production is from the Chinguetti field and the Group's production was 476 bopd for the month of December 2013.

A summary of revenue, cost of sales and lifting volumes are provided below:

	2013	2012
Liftings (bbls)1	181,691	219,177
Revenue ($million)	18.4	22.5
Revenue / bbl ($)	101.1	102.6
Lifting cost ($million)	(9.8)	(12.0)
Lifting cost / bbl ($)	(53.8)	(54.9)
1 Net Sterling production during the year totalled 192,370 (2012: 191,583)

Loss for year

The 2013 profit totalled $8.3 million (2012: loss $12.9 million).

	2013
Loss for year 2012	(12.9)
Impairment of Sangaw North (2012)	18.4
Other impairment reversals (2012)	(0.3)
Decrease in revenue	(4.1)
Decrease in operating costs	2.3
Increase in G&A	(0.4)
Release of accrual on final dissolution of in-country branch	1.0
Impairment reversal of Chinguetti	4.4
Decrease in pre-licence expenditure	0.1
Decrease in finance income & expense	(0.1)
Profit for year 2013	8.3

During 2013, the Group reversed impairments totalling $4.4 million on the Chinguetti asset following improvements in the expected field life.

The Group also reversed accruals totalling $1.0 million with respect to discontinuing operations following the final dissolution of local branches. All costs had been fully impaired in prior periods and had included these accruals which were considered payable at the time of impairment.

Group direct operating costs decreased by $2.3 million due to operating cost reductions in Chinguetti (see above).

Group administrative overhead increased during the year to $3.2 million (2012: $2.8 million). Included within this charge is $1.2 million (2012: $1.0 million) with respect to share-based payment charges.

A portion of the Group's staff costs and associated overheads are recharged to joint venture partners ($107k), expensed as pre-licence expenditure ($2.1 million), or capitalised ($2.0 million) where they are directly attributable to capital projects. In 2013 this portion of Group staff costs totalled $4.1 million (2012: $4.3 million).

A summary of these movements are provided below:

	2013	2012
Group administrative overhead	(3.2)	(2.8)
Costs capitalised	(2.0)	(1.9)
Costs recharged to JV partners	(0.1)	(0.5)
Pre-licence expenditure	(2.1)	(1.9)
	(4.2)	(4.3)
Share based payment expense	1.2	1.0
Other non-cash expenditure	0.1	0.0
Group cash G&A expense	(6.1)	(6.1)

EBITDA and net loss

Group EBITDA totalled $9.1 million (2012: $11.1 million).

Net profit after tax totalled $8.3 million (2012: loss $12.9 million). The basic profit per share was $0.04 per share (2012: loss $0.06 per share).

Interest received and finance expenses were a net expense of $251k (2012: $165k) which includes exchange losses of $66k (2012: gain $533k) on GBP cash deposits held at 31 December 2013 reported in US Dollars, a non-cash finance expense of $434k (2012: expenses $1.0 million) relate to the unwinding of the Chinguetti decommissioning, interest received totalled $268k (2012: $350k) and other finance expenses totalling $19k (2012: $38k).

No dividend is proposed to be paid for the year ended 31 December 2013 (2012: $nil).

Cash flow

Net Group cash inflow generated from operating activities was $6.3 million (2012: $7.8 million) a full reconciliation of which is provided in note 9.

Net cash investments in oil and gas assets totalled $5.9 million (2012: $4.4 million) and are summarised below:

	2013	2012
Somaliland 1	5.1	-
Madagascar 2	0.1	1.0
Cameroon	0.7	0.5
Kurdistan	-	3.1
Gabon	-	(0.2)
	5.9	4.4
1 Includes $3.0 million paid to Jacka Resources Somaliland Limited included within other receivables.
2 Net of $1.25 million received on Ambilobe farm-out.

Statement of financial position

At the year end, cash and cash equivalents totalled $120.8 million (2012: $120.3 million) of which unrestricted funds of $2.1 million (2012: $1.7 million) were held on behalf of partners, leaving a cash balance of $118.7 million (2012: $118.7 million) available for Sterling's own use at 31 December 2013.

At the end of 2013, net assets / total equity stood at $114.1 million (2012: $104.6 million), and non-current assets totalled $21.6 million (2012: $16.7 million). Net current assets increased to $114.1 million (2012: $109.2 million) due in part to a Chinguetti cargo lifted in late December 2013, cash for which was received in January 2014.

The Group's Chinguetti decommissioning provision increased during the year by $434k to $21.6 million (2012: $21.1 million) due to the extension of the field life from May to December 2017.

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

	Note	31st December 2013		31st December 2012
		$000		$000
Revenue		18,370		22,496
Cost of sales		(9,766)		(12,028)
Gross profit		8,604		10,468
Other administrative expenses		(3,177)		(2,795)
Reversal of impairment of oil and gas assets and royalty asset		4,359		347
Pre-licence costs		(2,226)		(2,353)
Total administrative expenses		(1,044)		(4,801)
Profit from operations		7,560		5,667
Finance income		892		350
Finance expense		(1,143)		(515)
Profit before tax		7,309		5,502
Tax		-		-
Profit for the year from continuing operations		7,309		5,502
Profit/(loss) for the year from discontinued operations	4	1,025		(18,422)
Profit/(loss) for the year attributable to the owners of the parent		8,334		(12,920)
Other comprehensive expense
Currency translation adjustments		(39)		(6)
Total other comprehensive expense for the year		(39)		(6)
Total comprehensive income/(expense) for the year attributable to the owners of the parent		8,295		(12,926)
Basic profit/(loss) per share (USc)
From continuing operations	5	3.32		2.51
From continuing and discontinued operations	5	3.79		(5.88)
Diluted profit/(loss) per share (USc)
From continuing operations	5	3.32		2.51
From continuing and discontinued operations	5	3.78		(5.88)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	31st December 2013		31st December 2012
		$000		$000
Non-current assets
Intangible royalty assets	6	2,794		2,424
Intangible exploration and evaluation assets	7	13,187		10,245
Property, plant and equipment	8	5,644		4,059
		21,625		16,728
Current assets
Inventories		2,746		2,993
Trade and other receivables		5,935		1,210
Cash and cash equivalents		120,755		120,348
		129,436		124,551
Total assets		151,061		141,279
Equity
Share capital		149,014		149,014
Share premium		378,863		378,863
Currency translation reserve		(249)		(210)
Retained deficit		(413,550)		(423,050)
Total equity		114,078		104,617
Non-current liabilities
Long-term provisions		21,651		21,274
		21,651		21,274
Current liabilities
Trade and other payables		15,332		15,388
		15,332		15,388
Total liabilities		36,983		36,662
Total equity and liabilities		151,061		141,279

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

					Currency
			Share	Share	translation	Retained
			capital	premium	reserve	deficit 1	Total
			$000	$000	$000	$000	$000
At 1 January 2012			148,589	378,859	(204)	(411,103)	116,141
Loss for the year			-	-	-	(12,920)	(12,920)
Currency translation adjustments			-	-	(6)	-	(6)
Total comprehensive expense for the year attributable to the owners of the parent			-	-	(6)	(12,920)	(12,926)
Issued share capital/premium			425	4	-	-	429
Share option charge for the year			-	-	-	973	973
At 31 December 2012			149,014	378,863	(210)	(423,050)	104,617
Profit for the year			-	-	-	8,334	8,334
Currency translation adjustments			-	-	(39)	-	(39)
Total comprehensive income for the year attributable to the owners of the parent			-	-	(39)	8,334	8,295
Share option charge for the year			-	-	-	1,166	1,166
At 31 December 2013			149,014	378,863	(249)	(413,550)	114,078

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	2013		2012
		$000		$000
Operating activities
Cash generated from operations	9	6,269		7,800
Net cash flow from operating activities		6,269		7,800
Investing activities
Interest received		268		350
Purchase of property, plant and equipment		(85)		(100)
Exploration and evaluation costs 1		(5,942)		(4,446)
Net cash used in investing activities		(5,759)		(4,196)
Financing activities
Net proceeds from issue of ordinary shares		-		429
Net cash flow generated from financing activities		-		429
Net increase in cash and cash equivalents		510		4,033
Cash and cash equivalents at beginning of year		120,348		115,826
Effect of foreign exchange rate changes		(103)		489
Cash and cash equivalents at end of year		120,755		120,348

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.       General information      

The preliminary results announcement is for the year ended 31 December 2013.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 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 Company has today published its Annual Report and Accounts on its website, www.sterlingenergyplc.com, these contain the full financial statements for the year ended 31 December 2013 that comply with the 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 2014, will be posted to Shareholders on or about 2 April 2013.

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
			2013			2012		2013		2012		2013	2012
			$000			$000		$000		$000		$000	$000
Statement of comprehensive income
Revenue 1			18,370			22,496		-		-		18,370	22,496
Cost of sales			(9,766)			(12,028)		-		-		(9,766)	(12,028)
Gross profit			8,604			10,468		-		-		8,604	10,468
Impairment reversal			4,359			347		-		-		4,359	347
Impairment provision			-			-		-		(18,422)		-	(18,422)
Accruals release			-			-		1,025		-		1,025	-
Pre-licence costs			(2,226)			(2,353)		-		-		(2,226)	(2,353)
Segment result			10,737			8,462		1,025		(18,422)		11,762	(9,960)
Unallocated corporate expenses												(3,177)	(2,795)
Profit/(loss) from operations												8,585	(12,755)
Finance income												892	350
Finance expense												(1,143)	(515)
Profit/(loss) before tax												8,334	(12,920)
Tax												-	-
Profit/(loss) attributable to owners of the parent												8,334	(12,920)
Profit from continuing operations												7,309	5,502
Profit/(loss) from discontinued operations												1,025	(18,422)
												8,334	(12,920)
									Middle East
	Corporate					Africa			(Discontinued)			Total
	2013			2012		2013	2012		2013		2012	2013		2012
	$000			$000		$000	$000		$000		$000	$000		$000
Other segment information
Capital additions
Property, plant and equipment	85			100		-	-		-		-	85		100
Exploration and evaluation	-			-		2,942	1,313		-		4,5752	2,942		5,888
Depreciation & amortisation	(69)			(59)		(2,420)	(2,422)		-		-	(2,489)		(2,481)
Impairment reversal	-			-		4,359	347		-		-	4,359		347
Impairment provision	-			-		-	-		-		(18,422)	-		(18,422)
Segment assets and liabilities
Non-current assets 3	97			83		21,528	16,645		-		-	21,625		16,728
Segment assets 4	119,146			119,409		9,210	3,409		1,080		1,733	129,436		124,551
Segment liabilities 5	(1,298)			(711)		(35,179)	(33,906)		(506)		(2,045)	(36,983)		(36,662)
1 Revenue from continuing operations includes amounts of $17.1 million (100% external) from one single customer (2012: $21.2 million).
2 Included within the $4.6 million are accruals totalling $1.4 million and net cash additions of $3.1 million.
3 Segment non-current assets include $7.3 million in Cameroon (2012: $6.5 million), $nil in Kurdistan (2012: $nil), $8.3 million in Mauritania (2012: $6.4 million), $3.9 million in Madagascar (2012: $3.8 million) and $2.1 million in Somaliland (2012: $nil).
4 Carrying amounts of segment assets exclude investments in subsidiaries.
5 Carrying amounts of segment liabilities exclude intra-group financing.

4.       Discontinued operations

On 29 January 2013, Sterling formally announced withdrawal from the Sangaw North licence in Kurdistan. The decision to relinquish was made in December 2012 and all amounts, totaling $18.4 million, were fully impaired at this date. At the date of the final dissolution, Sterling had fully satisfied the work commitment required by the Sangaw North PSC and all other commitments in country.

During 2013 the Group released accruals totalling $1.0 million.

The financial impact of the Group's discontinued operations is provided below:

				2013	2012
				$000	$000
Profit/(loss) for the year from discontinued operations				1,025	(18,422)
Cash flows from investing activities (note 9)				-	(3,133)
Net (decrease)/increase in cash and cash equivalents				(553)	719
Basic profit/(loss) per share from discontinued operations (USc) (note 5)				0.47	(8.39)
Diluted profit/(loss) per share from discontinued operations (USc) (note 5)				0.46	(8.39)

5.       Earnings per share 

			Basic			Diluted
			2013	2012		2013	2012
			$000	$000		$000	$000
Profit for the year (continuing operations)			7,309	5,502		7,309	5,502
Profit/(loss) for the year (discontinuing operations)			1,025	(18,422)		1,025	(18,422)
Weighted average number of ordinary shares in issue during the year			220,053,520	219,530,061		220,053,520	219,530,061
Dilutive effect of share options outstanding			-	-		367,069	-
Fully diluted average number of ordinary shares during the year			220,053,520	219,530,061		220,420,589	219,530,061
EPS (continuing operations)			3.32	2.51		3.32	2.51
EPS (discontinuing operations)			0.47	(8.39)		0.46	(8.39)

In the current year, the number of potentially dilutive ordinary shares in respect of All staff and NED LTIPs outstanding as at the year end is 13,707,483 (2012: 11,409,488).

6.       Intangible royalty assets

		Group
		$000
Net book value at 31 December 2011 and 1 January 2012		3,221
Amortisation charge for the year		(797)
Net book value at 31 December 2012		2,424
Impairment reversal		1,152
Amortisation charge for the year		(782)
Net book value at 31 December 2013		2,794

Group net book value at 31 December 2013 comprises the value of rights to future royalties in respect of the Group's agreements covering licences PSC A, PSC B and PSC C-10 in Mauritania. The value of these royalty interests is dependent upon future oil and gas prices and the development and production of the underlying oil and gas reserves.

Impairment assessments and any subsequent charges are calculated on an individual royalty interest basis. Future recoverable amounts are estimated by management based on the present value of future cash flows expected to be derived from the production of commercial reserves in these licences and are compared against the carrying value of these assets.

In 2013 impairment losses recognised in prior periods totalling $1.2 million have been reversed on the Chinguetti asset.

7.         Intangible Exploration and Evaluation ("E&E") assets

								Group
							Note	$000
Net book value at 31 December 2011 and 1 January 2012								22,455
Additions during the year								5,888
Impairment charge for the year							3	(18,422)
Impairment reversal for the year								324
Net book value at 31 December 2012								10,245
Additions during the year								4,192
Reimbursement of back costs on farm-out of Ambilobe licence								(1,250)
Net book value at 31 December 2013								13,187

On 28 October 2013, Sterling announced its farm-in to the Odewayne Block, onshore Somaliland. Under the terms of the farm-in Sterling will pay a total of $10.0 million to Petrosoma Limited, a Somaliland company, for a 10% interest in the licence. $8.0 million of the consideration is contingent upon the completion of certain operational milestones which had not been achieved at 31 December 2013 and is disclosed as a contingent liability.

On 27 January 2014, Sterling announced the completion of the acquisition of a further 15% interest in the Odewayne Block from Jacka Resources Somaliland Limited, an Australian Company. Sterling will pay a total of $15.0 million for the 15% interest. At 31 December 2013 Sterling had paid a total of $3.0 million which is included within other receivables. The remaining $12.0 million dollars is contingent upon the completion of certain operational milestones which had not been achieved at 31 December 2013.

The amount for intangible exploration and evaluation assets represents investments in respect of exploration licences. Impairment tests on E&E assets are conducted on an individual cost pool basis when facts and circumstances suggest that the carrying amount in the pool may exceed its recoverable amount.

8.         Property, plant and equipment

			Computer
		Oil and Gas assets	and office equipment	Total
Group		$000	$000	$000
Cost
At 31 December 2011 and 1 January 2012		185,825	2,964	188,789
Additions during the year		-	100	100
Adjustments during the year		(23)	-	(23)
At 31 December 2012		185,802	3,064	188,866
Additions during the year		-	85	85
Disposals in the year		-	(3,006)	(3,006)
At 31 December 2013		185,802	143	185,945
Accumulated depreciation and impairment
At 31 December 2011 and 1 January 2012		(180,223)	(2,923)	(183,146)
Charge for the year		(1,625)	(59)	(1,684)
Impairment reversal for the year		23	-	23
At 31 December 2012		(181,825)	(2,982)	(184,807)
Charge for the year		(1,638)	(69)	(1,707)
Impairment reversal for the year		3,207	-	3,207
Disposals in the year		-	3,006	3,006
At 31 December 2013		(180,256)	(45)	(180,301)
Net book value at 31 December 2013		5,546	98	5,644
Net book value at 31 December 2012		3,977	82	4,059
Net book value at 31 December 2011		5,602	41	5,643

During the year impairment reversals recognised in prior periods totalling $3.2 million have been reversed on the Chinguetti asset (2012: $23k).

9.         Cash flows from operating activities

		2013	2012
Group		$000	$000
Operating activities:
Profit before tax from continuing operations		7,309	5,502
Profit/(loss) before tax from discontinued operations		1,025	(18,422)
Finance income and gains		(892)	(350)
Finance expense and losses		1,066	503
Depletion and amortisation		2,488	2,481
Impairment reversal		(4,359)	(347)
Impairment expense		-	18,422
Share-based payment charge		1,166	973
Operating cash flow prior to working capital movements		7,803	8,762
Decrease/(increase) in inventories		247	(121)
Increase in trade and other receivables		(1,725)	(287)
Decrease in trade and other payables		(56)	(554)
		6,269	7,800
Cash generated from continuing operations		6,822	7,852
Cash outflow from discontinued operations		(553)	(52)
		6,269	7,800

DEFINITIONS AND GLOSSARY OF TERMS

$                                                          US dollars

2006 Act                                               The Companies Act 2006, as amended

2007 LTIP                                              the 2007 Long Term Incentive Plan

1P                                                        Proven reserves or in-place quantities depending on the context

2D                                                        two dimensional

2P                                                        the sum of Proven and Probable reserves or in-place quantities
   depending on the context

3D                                                        three dimensional

3P                                                        the sum of Proven, Probable and Possible reserves or in-place quantities
   depending on the context

AIM                                                      Alternative Investment Market of the London Stock Exchange

All Staff LTIP                                         the All Staff Long-Term Incentive Plan adopted in 2009

AGM                                                    Annual General Meeting

API gravity                                            an American Petroleum Institute scale for crude oil density

Articles                                                 the Articles of Association of the Company

bbl                                                        barrel, equivalent to 42 US gallons of fluid

bbl/d                                                     barrel per day

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

boepd                                                    barrel of oil equivalent per day

bcf                                                        billion cubic feet of gas

Board                                                    the Board of Directors of the Company

C                                                          Celsius

Capex                                                   capital expenditure

CGR                                                     condensate gas ratio

Combined Code or Code                        the Combined Code on Corporate Governance. Now superseded by the
   UK Corporate Governance Code (see below). 

Companies Act                                     the Companies Act (as amended 2006).

Company or Sterling                             Sterling Energy Plc

Contingent Resources                           those quantities of petroleum estimated, as at a given date, to be
  potentially recoverable from known accumulations by application of
  development projects but which are not currently considered to be
  commercially recoverable due to one or more contingencies, Contingent
  Resources are a class of discovered recoverable resources.

COS                                                    chance of success

CSOP                                                  Company Share Option Plan (HMRC approved share option scheme).

Darcy                                                   unit of permeability

Deg                                                      degrees

Directors                                               the Directors of the Company

DST                                                      drill stem test, a method of flow testing a well

E&E                                                     exploration and evaluation assets

EBITDA                                                earnings before interest, taxation, depreciation, depletion and
  amortisation, impairment, share-based payments and pre-licence
  expenditure

EITI                                                      Extractive Industries Transparency Initiative

EMV                                                    expected monetary value

EUR                                                     economic ultimate recovery

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

FDP                                                     field development plan

FPSO                                                  Floating, Production, Storage and Offloading vessel

FCA                                                     the Financial Conduct Authority of the United Kingdom

G&G                                                    geological and geophysical

GBP                                                    pounds sterling

Genel Energy                                       Genel Energy Somaliland Limited

GIIP                                                     gas initially in place

GOC                                                    gas oil contact

GOR                                                    gas oil ratio

GWC                                                   gas water contact

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

JV                                                         joint venture

km                                                        kilometre(s)

km²                                                       square kilometre(s)

lead                                                      indication of a possible exploration prospect

London Stock Exchange or LSE              London Stock Exchange Plc

m                                                          metre(s)

mmbbl                                                   million barrels

mmstb                                                   million barrels of oil at stock tank conditions

mmboe                                                  million barrels of oil equivalent

mmcf                                                     million cubic feet of gas

mmcfge/d                                              million cubic feet of gas equivalent per day

mmscf/d                                                million cubic feet at standard pressure and temperature per day

mss                                                      metres sub-sea

mTVDss                                                metres true vertical depth sub-sea

Murphy Oil                                            Murphy Cameroon Ntem Oil Co. Ltd a wholly owned subsidiary of Murphy
   Oil Corporation

NED LTIP                                             non-executive Director Long Term Incentive Plan adopted in 2009

NPV                                                     net present value of a series of cash-flows

OECD                                                  Organisation for Economic Cooperation and Development

Opex                                                    operating expenditure

Ordinary Shares                                    Sterling ordinary shares of 40 pence each

OWC                                                    oil water contact

P90, P50, P10                                      90%, 50% and 10% probabilities respectively that the stated quantities
  will be equalled or exceeded. The P90, P50 and P10 quantities
  correspond  to the Proved (1P), Proved + Probable (2P) and Proved +
  Probable + Possible (3P) confidence levels respectively

Panel or Takeover Panel                        The Panel on Takeovers and Mergers

Petroleum                                            oil, gas, condensate and natural gas liquids

Petronas                                              PC Mauritania 1 PTY LTD

PP&E                                                  Property, Plant & Equipment

PRMS                                                 Petroleum resource Management System as issued in March 2007 by the
  Society of Petroleum Engineers et al

Prospect                                             a potential sub-surface accumulation of hydrocarbons which has been
  identified but not drilled

Prospective Resources or                     those quantities of petroleum which are estimated, as at a

Prospective Recoverable Resources      given date, to be potentially recoverable from undiscovered accumulations

psi(a)                                                  pounds per square inch (absolute)

PSA                                                   production sharing agreement

PSC                                                   production sharing contract

Pura Vida                                           Pura Vida Mauritius

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

RF                                                     recovery factor

RI                                                      royalty interest

RISC                                                 RISC (UK) Limited of 53 Chandos Place, Covent Garden, London WC2N 4HS

Scf                                                    standard cubic feet of gas (measured at 60 degree Fahrenheit and 14.7 psia)

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 share price

Shares                                               40p Ordinary Shares

Shareholders                                      Ordinary shareholders of 40p each in the Company

SMH                                                  Société Mauritanienne Des Hydrocarbures

sq km                                                square kilometre

sq mi                                                 square mile

stb                                                     stock tank barrel (measured at 60 degrees Fahrenheit and 14.7 psia)

STOIIP                                               Stock tank oil initially in place

Subsidiary                                          a subsidiary undertaking as defined in the 2006 Act

Tcf                                                      trillion cubic feet of gas

TEA                                                    technical evaluation agreement

TD                                                      total depth

TSR                                                   Total Shareholder Return (End Share Price - Opening Share Price / Opening Share Price) plus (Sum of Dividends Per Share / Opening Share Price).

TVD                                                    true vertical depth

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

United States or US                            the United States of America

Water-cut                                           that percentage of total fluid production that is water

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.

 

END

 

 

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