Annual Results for the Year Ended 31 December 2011
20 March 2012
STERLING ENERGY PLC
ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
Sterling Energy Plc ("Sterling" or the "Company") is an upstream oil and gas Company listed on AIM in London. Sterling is an experienced operator of international licences with a current focus on projects in Africa and the Middle East. Sterling has high potential projects in Cameroon, Madagascar and Kurdistan.
2011 SUMMARY
· Completed farm-out of Ntem block, offshore Cameroon, to subsidiary of Murphy Oil Corporation; Sterling retains 50% interest and is carried for its share of all exploration expenditure during the current exploration period under the Ntem contract.
· Sangaw North-1 exploration well failed to find commercial hydrocarbons; secondary objectives within Sangaw North block are being evaluated.
· Received $11.2 million of net cash flow from Chinguetti field operations during 2011 (2010: $15.6 million).
· Cash resources as at 31 December 2011 $115.8 million (2010: $111.7 million).
· Company remains debt free.
· Strengthened technical team in support of New Ventures focus.
CHAIRMAN'S STATEMENT
We believe Sterling's exploration portfolio contains a number of very prospective assets, a view supported by Murphy Oil Corporation when they chose, through a wholly-owned subsidiary, to farm-in to our Ntem licence in Cameroon. In exchange for a 50% interest they will fund all of the costs for Sterling's retained 50% interest during the remainder of the current exploration period of the licence. Murphy has a broad experience of drilling wells in deep water and they have become operator for the Ntem block. We look forward to when the boundary dispute between Cameroon and Equatorial Guinea is resolved and we can re-commence our exploration of the Ntem block.
The biggest disappointment for 2011 was the failure to discover commercial hydrocarbons in the Sangaw North-1 exploration well. However, our sub-surface specialists believe, based on all the available data, that there is potential for secondary objectives on the flanks of the main Sangaw structure. We plan to acquire 2D seismic this year to evaluate this potential.
In Madagascar progress on the Ampasindava and Ambilobe blocks remain stalled following the change of Government in March 2009. A 'roadmap' has been agreed between the current Government and their African neighbours for the holding of democratic elections during 2012, after which Sterling and ExxonMobil, our partner in Ampasindava block, will resume exploration activities.
Notwithstanding the merits of our existing projects, we recognise the need to broaden the portfolio, and we have the human and financial resources to achieve this. Our focus remains exploration. Our preferred method of entry is to secure a material working interest which, following a work programme to de-risk and/or value-add, we can farm down prior to major capital exposure. We have refreshed our new venture team with a new Exploration Director and several new sub-surface specialists who will complement the skills of our existing team. I look forward to reporting on our progress towards securing opportunities during 2012.
Financial
The Company remains in a very strong financial position with cash resources of $115.8 million at the end of 2011. Our approved work programme for 2012 is fully funded and we now have substantial funds available for new venture activity. During 2011, we held these very material funds to cover two possible eventualities: if the outcome of the Sangaw North-1 well had been more positive we would have funded our 53.33% working interest of an accelerated programme of seismic and an appraisal well, and prior to farming out 50% of the Ntem block to Murphy Cameroon Ntem Oil Co. Ltd we wished to be ready, if circumstances permitted force majeure to be lifted, to progress the drilling of an exploration well as required under the Ntem Contract. Sterling is now able to commit a much larger proportion of the cash reserves towards acquiring and progressing new ventures.
We remain pleased that the revenue from Chinguetti field operations in Mauritania provided positive cash flow during 2011 in excess of Sterling's administrative costs.
Board and management changes
During 2011, Dr Jonathan Cooper, Sterling's Finance Director, and Mr Andrew Grosse, Sterling's Exploration Director, resigned. I thank them both for their valuable contributions over the years and wish them well in their new endeavours.
Dr Philip Frank was appointed Sterling's new Exploration Director on 3 October 2011. Philip has spent some 34 years in the E&P industry and already, in the few months he has been with Sterling, his experience as a successful explorer has greatly enhanced Sterling's new venture activity.
Nominated Adviser and Broker
On 16 December 2011, Sterling appointed Liberum Capital Limited as the Company's nominated adviser and broker. Liberum provides a wide range of services for its clients, including corporate finance advice, stock broker and research.
Outlook for 2012 and beyond
Whilst we have no influence over the resolution of the border dispute between Cameroon and Equatorial Guinea, we are ready to commence the drilling programme to evaluate the large prospects, identified from 3D seismic, when force majeure can be lifted. We believe the Ntem block contains significant potential value waiting to be tested with the drill bit.
During 2012 one of our key objectives is to add to our portfolio of assets. Additions will be sought to broaden our exposure to opportunities in Africa and the Middle East. However, outstanding opportunities outside of these core areas will also be considered.
I would like to thank all Sterling's Directors and staff for their resilience during a disappointing 2011 and look forward to reporting progress with our existing projects and delivering new opportunities during 2012.
Alastair Beardsall
Chairman
CHIEF EXECUTIVE'S REVIEW
Sterling is an oil and gas company focused on exploration in Africa and the Middle East. The Company's strategy continues to be to add shareholder value through participation in the exploration drilling of large exploration prospects whilst retaining a material working interest. The Company's existing portfolio consists principally of large working interests in high materiality exploration licences acquired early in the exploration of an area. The Company has then advanced understanding of the exploration play through the acquisition of data and the application of technical studies, and reduced the exploration risk to a level that is commercially viable for the drilling of exploration wells. When appropriate the Company has introduced partners, generally through a farm-down process, to pay some, or all, of Sterling's share of the costs of exploration drilling operations.
The Company's exploration portfolio consists of highly prospective interests in three areas, Cameroon, Madagascar and Kurdistan. With this concentrated portfolio, the drilling of exploration wells is infrequent and the outcome of success or failure in any one well will greatly affect the longer term value of the Company (the average historical industry success rates for exploration wells worldwide is approximately one success for every five wells drilled). Success in any one exploration well has the potential for very large returns for shareholders and, by farming-down a proportion of our working interest in exchange for a third party to cover our share of the costs, the down side of our financial exposure is limited and success in any one exploration well has the potential for very large returns for shareholders.
During 2011, the Company made mixed progress in advancing exploration in two of its current areas, Kurdistan and Cameroon.
In Kurdistan, Sterling completed the drilling and testing of the Sangaw North-1 well. Following the farm-down of a 26.67% working interest to Addax, Sterling retained a large potential upside on success, for a cost to the Company of approximately $11 million, being its working interest share of testing operations as all drilling costs were carried by Addax under the farm-out agreement. Unfortunately, testing operations demonstrated only small quantities of gas accompanied by water, making the main structure on the block non-commercial. Sterling has combined the well result with existing seismic data and exploration results in the area surrounding the block to develop a secondary play along the flanks of the main structure. The joint venture partnership plans to acquire additional 2D seismic in 2012 to confirm this play and, if this data is encouraging, may elect to drill an exploration well in 2013.
In Cameroon, Sterling has introduced Murphy Cameroon Oil Co. Ltd, a wholly-owned subsidiary of Murphy Oil Corporation, a successful deep-water operator, as a 50 per cent working interest partner and operator in the Company's deep water Ntem licence. Murphy paid to Sterling a contribution towards past costs and is committed to fully fund joint operations in relation to the current phase of exploration which includes the drilling of one exploration well. The block remains in force majeure due to a disagreement between the neighbouring Governments of Cameroon and Equatorial Guinea on their maritime border. When force majeure is lifted, fifteen months remain of the current phase of exploration in which to drill the planned exploration well.
Reprocessing of the existing 3D seismic that covers more than 66% of the Ntem licence, and subsequent interpretation, was also completed in 2011 and increased the Company's confidence in the four prospects within the licence. In the Company's best estimate, each prospect has gross un-risked prospective resources of several hundred million barrels of recoverable oil.
In Madagascar, the Company has a material interest in the giant Sifaka prospect in the deep water Ampasindava licence in Madagascar. This prospect has been assessed by RISC, an independent sub-surface engineering consultancy, as having 1.2 billion barrels of gross un-risked prospective resource of recoverable oil.
However, progress towards drilling the Sifaka prospect was halted in 2009 when there was a change of Government in Madagascar by non-democratic means. In 2011, the incumbent Government and their African neighbours signed a 'roadmap' for the holding of democratic elections during 2012, after which Sterling and ExxonMobil, our partner in Ampasindava block, expect to resume exploration activities.
The Company also has an economic interest, approximately equivalent to 8 per cent, in production from the Chinguetti field in Mauritania and a minor royalty interest in the surrounding exploration acreage. Chinguetti is mature with no further development planned in the field. Gross oil production during 2011 averaged approximately 7,250 barrels per day. The rate of production decline has been reduced over the last 2 years, due to reservoir management and production optimisation activities. As a result of this improved production performance and outlook compared to previous predictions, the Company has in 2011 partially reversed a prior impairment of the asset by $8.3 million and increased the net proved and probable reserves by 0.472 million barrels. Cash flow from our interests in Chinguetti currently covers the Company's administrative overhead costs and makes a contribution to the cost of operations. Whilst the cash flow from this project is significant, this asset is not material in comparison to the future potential of our other projects.
Sterling's exploration portfolio consists of highly prospective and material exploration projects in three emerging exploration areas. However, the largest scale projects, in Cameroon and Madagascar, are currently stalled operationally due to external factors not controlled by Sterling. Consequently, the planned exploration programme in existing assets during 2012 is relatively modest, consisting of the acquisition of 2D seismic data in the Sangaw North licence in Kurdistan and aeromagnetic data in the Ambilobe licence in Madagascar. Notwithstanding this situation, Sterling is ready to accelerate activities in both of these areas should the opportunity arise.
While the Company is confident these external factors will be resolved in due course, Sterling is, in the meantime, in a position to use its additional asset, a strong balance sheet with cash resources of $115.8 million at 31 December 2011, to build on the existing portfolio in a manner consistent with the Company's strategy.
A material portion of the balance sheet cash has been held over the last two years for the eventualities of appraisal operations in Kurdistan and exploration drilling in Cameroon. Following the successful farm-out in Cameroon and unsuccessful exploration well in Kurdistan, this portion is now available for new ventures.
Sterling's technical and commercial team was re-structured during 2011 and continues to be strengthened. The Company is ready to progress our existing exploration projects as fast as allowed by external factors, and to identify and secure complementary exploration opportunities in 2012. The building of the exploration portfolio is a major focus of the Company during 2012 and we look forward to reporting to our shareholders on the progress we shall make in this regard.
Angus MacAskill,
Chief Executive Officer
OPERATIONS REVIEW
CAMEROON
Ntem (WI 50%)
The Ntem concession area is a deep water block situated in the southern Douala / Rio Muni Basin and lies adjacent to the northern maritime border of the Rio Muni province of Equatorial Guinea. Water depths range from 400m to 2,000m across the block. During the first term of the concession over 2,100km of 2D and 1,500km2 of 3D seismic data were acquired. Additional seismic and gravity data were purchased.
This large block is undrilled and is well placed with respect to both Tertiary and Upper Cretaceous plays, which have both proved successful in West Africa. To the north of the block, Tertiary oil, gas and condensate discoveries made by Noble Energy commenced production in 2011, and further nearby discoveries are being appraised by Euroil (Bowleven).
During 2011, Sterling re-processed the 3D seismic data and interpretation of the improved data increased Sterling's confidence in the material exploration prospects previously identified in the block. The Company considers that four of these prospects are ready to drill and estimates that each has gross un-risked prospective recoverable resources of several hundred million barrels.
In November 2011 Sterling completed a farm-out agreement with Murphy Cameroon Ntem Oil Co. Ltd (Murphy), a wholly owned subsidiary of Murphy Oil Corporation under which Murphy was assigned a 50% working interest in, and operatorship of, the Ntem concession. Sterling retains a 50% non-operated working interest. As consideration, Murphy paid to Sterling a contribution towards past costs and is committed to fully fund joint operations in relation to the current phase of exploration.
Operations within the Ntem concession area are currently suspended under the force majeure provisions of the licence owing to an overlapping maritime border claim between Cameroon and Equatorial Guinea. The Company believes that both countries are actively working to resolve this issue and that the impact of the outcome will be either neutral or positive to the Company's position however, the possibility exists that the resolution could take longer than expected and that the outcome could have a negative effect on the Company's position.
When force majeure is lifted, there will be 15 months remaining in the current exploration period which includes the drilling of one exploration well. Having introduced an experienced deep water operator, the Company is now well placed for this operation when it occurs.
MADAGASCAR
Sterling's Ambilobe and Ampasindava blocks are located in the Majunga and Ambilobe deep water basins, respectively, offshore north-west Madagascar. Exploration activity in these blocks continues to be delayed due to the political situation in the country following a change of Government by non-democratic methods in March 2009. The Government of Madagascar has not been recognised by the African Union or by the United Nations. In September 2011, the political parties in Madagascar agreed a process, prepared by the Southern African Development Community, leading to elections expected by the end of 2012.
During 2011, discussions have been undertaken with OMNIS, the state regulator, to prolong the current exploration period of both the Ambilobe and Ampasindava production sharing contracts. These discussions have been positive and an outcome is expected in 2012, however, the possibility exists that these licences will not be prolonged.
Ampasindava (WI 30%)
The production sharing contract (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).
ExxonMobil (WI 70%, Operator) and Sterling plan to drill this well once political stability is re-established.
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 may farm down the current working interest to cover these costs. It is currently unlikely that an exploration well will commence drilling before 2014.
Ambilobe (WI 100% & Operator)
The PSC for Ambilobe is in the second phase of the exploration period. All work commitments have been fulfilled by completing geological and geophysical studies and acquiring approximately 1,000km of 2D seismic. A number of large 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.
During 2011, an environmental impact assessment was undertaken in preparation for future exploration activities in the area. The Company plans to complete this study in 2012. The Company may undertake the acquisition of aeromagnetic data in 2012 to optimise the planning of subsequent seismic data acquisition.
KURDISTAN
Sangaw North PSC (WI 53.33% & Operator)
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.
The Sangaw North-1 exploration well, commenced in 2010 was drilled to a total depth of 4,190m into the Triassic aged Kurra Chine formation and in the current reporting period three flow tests were conducted across intervals between the Triassic aged Kurra Chine and the Cretaceous aged Kometan formations. Gas was produced, along with formation water, at rates that are not commercial and the well has been plugged and abandoned. Details of the three flow tests conducted in the current reporting period are as follows:
DST-3 tested an open-hole interval from 3,338m to 4,190m across the Jurassic Mus and Butmah formations and the Triassic Kurra Chine formation. The well flowed at a stabilised rate of approximately 4.6 million standard cubic feet of gas and 7,280 barrels of formation water per day during a 12 hour flow period through a 96/64ths inch choke with a wellhead pressure of 470 pounds per square inch. Analysis of gas samples, following the flow test, indicated that 53 per cent of the produced gas was hydrocarbon gas with the remainder comprising 46 per cent hydrogen sulphide and 1 per cent carbon dioxide.
DST-4 tested a 100m cased hole interval within the Jurassic aged Sargelu formation. Formation gas and water were observed in small quantities at surface but sustainable flow rates were not achieved.
DST-5 tested a 100m cased hole interval within the Cretaceous aged Kometan formation. The well flowed at a stabilised rate of approximately 0.4 million standard cubic feet of gas and 4,500 barrels of formation water per day during an 8 hour flow period through a 60/64ths inch choke with a wellhead pressure of 280 pounds per square inch. Analysis of gas samples, during the flow test, indicated approximately 83 per cent of the produced gas was hydrocarbon gas with the remainder comprising 10 per cent hydrogen sulphide and 7 per cent carbon dioxide
The Sangaw North-1 exploration well tested the main structure within the block and was, unfortunately, unsuccessful. The Company has integrated the results of this well, along with exploration results in surrounding areas, into its geological interpretation of the block and believes that smaller, but nonetheless interesting, potential remains in an exploration play along the flanks of the main structure.
Following the identification of the remaining exploration potential, the joint venture partners entered the second sub-period of the exploration phase of the PSC in November 2011, with a duration of 2
years to November 2013. The work commitment for this period has been fulfilled by the drilling of the Sangaw North-1 well.
The partnership plans to acquire 130km of 2D seismic data in 2012 to evaluate the identified exploration leads with the aim of preparing a prospect for drilling in 2013.
MAURITANIA
Chinguetti (Economic Interest via Funding and Royalty Agreements)
Gross production continued to decline at the lower rate observed in 2010, reducing from 7,800 bopd in January to 6,800 bopd in December. The average production net to Sterling during 2011 was 629 bopd.
Sterling estimates that at the end of 2011, as a result of the lower observed decline rate, Chinguetti held a remaining 9.2 million barrels of gross proved and probable reserves (2P) that could be accessed with the existing wells. This is reflected in the upwards revision of Sterling's net 2P reserves to 0.664 million barrels.
No in-fill drilling or work-over activity took place on the Chinguetti field during 2011. A planned shutdown for maintenance of the floating production and storage facility was conducted over a 5 day period in November 2011.
In October 2011, the joint venture partners in PSC A and PSC B concluded agreements with the Mauritanian Government for the replacement of the offshore exploration areas within these PSC's with a new, single exploration PSC called C-10, operated by Tullow Oil Plc. The exploration programme in PSC C-10 is expected to include a minimum of 2 wells over the first 3 years. The existing Banda, Tevet and Tiof discoveries have been ring-fenced under their original PSC terms and extensions of up to 18 months were granted to allow appraisal and development activities to be completed. Petronas will continue to operate Chinguetti field.
In the event of any commercial development of existing or future discoveries within these contract areas, Sterling will be entitled to revenue, but will not have any cost obligations, under its royalty interest agreements with Premier Oil.
Philip Frank
Exploration Director
Financial review
Selected financial data
|
|
|
|
|
|
|
|
2011 |
2010 |
|
|
|
|
|
|
Chinguetti production* |
bopd |
629 |
654 |
|
|
|
|
|
|
Year-end 2P reserves* |
000 boe |
664 |
421 |
|
|
|
|
|
|
Revenue |
$million |
19.1 |
25.3 |
|
EBITDA* |
$million |
11.6 |
11.3 |
|
Profit after tax |
$million |
18.4 |
5.8 |
|
Net cash investment in oil & gas assets |
$million |
1.7 |
12.2 |
|
Year-end cash (including partner funds) |
$million |
115.8 |
111.7 |
|
Year-end debt* |
$million |
- |
- |
|
Year-end net cash (including partner funds) |
$million |
115.8 |
111.7 |
|
|
|
|
|
|
Average realised oil price (net of hedges) |
$/bbl |
108.57 |
80.44 |
|
Total cash operating costs per boe (produced) |
$/boe |
34.03 |
38.15 |
|
|
|
|
|
|
Year-end share price |
Pence |
40 |
84 |
|
Share price change*
*Key performance indicators |
% |
(53) |
(46) |
|
|
|
|
|
HIGHLIGHTS
· Group net profit of $18.4 million in 2011 (2010 $5.8 million);
· Cash balance at year-end of $115.8 million (2010: $111.7 million);
· Average 2011 Chinguetti production 629 bopd (2010: 654 bopd);
· Debt free throughout 2011.
REVENUE AND COST OF SALES
2011 production averaged 629 bopd, including Royalty barrels, a decrease of 4% from the 654 bopd averaged in 2010. Currently, all of the Group's production is from the Chinguetti field and the Group's production was 597 bopd for the month of December 2011.
Group turnover was $19.1 million (2010: $25.3 million) on 176,345 barrels sold (2010: 315,000) with an average realised oil price of $108.57 per bbl (2010: $80.44 per bbl). Volumes lifted and sold during the year were down by 46% to 2.0 million barrels (2010: 3.7 million barrels), due mainly to timing differences on liftings of oil stored in facilities at the Chinguetti field.
PROFIT FROM OPERATIONS
The 2011 profit from operations totalled $16.3 million (2010: $7.3 million).
During the year, an impairment reversal totalling $8.3 million (2010: $nil) on the Chinguetti asset has been recognised. This reversal of prior year impairments has been made following a review of decline rates by the operator, Petronas, who have extended their estimates of the economic field life. Sterling's own assessment of the asset's economic field life, although more conservative than that of the operator, is broadly in line with their assessment.
Chinguetti cost of sales totalled $6.1 million (2010: $13.6 million) averaging $34.66/bbl (2010: $43.11/bbl). The difference in the average cost per barrel is principally due to reductions in direct operating expenditures and reduced Royalty amortisation charges following the economic field life revision on the Chinguetti block.
Pre-licence exploration costs of $1.3 million (2010: $0.7 million) have been written off during the year.
Administrative costs increased marginally during the year to $3.7 million (2010: $3.6 million). Included within this charge is $1.9 million (2010: $1.9 million) relating to share-based payment charges.
A portion of the Group's staff costs and associated overheads are recharged to the joint venture partners, expensed as pre-licence expenditure or capitalised where they are directly attributable to on-going capital projects. In 2011 this portion amounted to $5.1 million (2010: $6.8 million).
EBITDA AND NET PROFIT
Group EBITDA (as defined within the Definitions and Glossary of Terms) totalled $11.6 million (2010: $11.3 million).
Net profit after tax totalled $18.4 million (2010: profit $5.8 million). The basic profit per share was $0.08 per share (2010: $0.03 per share).
Interest revenue and finance expenses were a net income of $2.2 million (2010: net expense $1.4 million) reflecting foreign exchange losses of $0.1 million (2010: $0.6 million) on GBP cash balances held at 31 December 2011 which are reported in US Dollars.
Non-cash finance income of $1.9 million (2010: $1.0 million) relates to the reduction of the decommissioning discount on the Chinguetti abandonment provision due to the improvements in the expected field life. Of this $1.9 million, an expense of $0.9 million (2010: $1.0 million) relates to the unwinding of the decommissioning provision and an income of $2.8 million (2010: $nil) relates to adjustments made to the provision during the year following a review of the field's economic life by the operator.
Interest revenue was $0.4 million (2010: $0.2 million).
No dividend is proposed to be paid for the year ended 31 December 2011 (2010: $Nil)
CASH FLOW
Net Group cash inflow generated from operating activities was $5.6 million (2010: $10.4 million).
Net cash investments in oil and gas assets totalled $1.7 million (2010: $12.2 million) primarily comprising of $4.5 million invested in Kurdistan relating to testing costs on the Sangaw North-1 well, a net reduction of $3.5 million in costs in Cameroon following the successful farm-out of the Ntem field ($4.8 million cost reimbursement) and $0.7 million invested in Madagascar. The Group's exploration drilling expenditure for Sangaw North-1 was carried by Addax, with Sterling paying its share of testing costs.
STATEMENT OF FINANCIAL POSITION
Cash and cash equivalents were $115.8 million at the year-end (2010: $111.7 million) of which unrestricted funds of $1.0 million (2010: $10.1 million) was held on behalf of partners, leaving a cash balance of $114.8 million (2010: $101.6 million) available for Sterling's own use at 31 December 2011. At the end of 2011, net assets/total equity stood at $116.1 million (2010: $95.8 million), and non-current assets were $31.3 million (2010: $21.8 million). This increase was primarily as a result of investment in Kurdistan, the increase to the Chinguetti Funding Agreement and the increase to the Chinguetti Royalty Asset. Net current assets increased to $105.1 million (2010: $96.3 million).
The Group's Chinguetti decommissioning provision decreased during the year by $1.9 million to $20.1
million (2010: $22.0 million) following a review of the field's economic life by the operator.
HEDGING
During 2011 the Group did not have any oil and gas price derivatives in place (2010: no oil and gas price derivatives in place).
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.
For further information contact:
Sterling Energy plc +44 (0) 20 7405 4133
Alastair Beardsall, Chairman
Angus MacAskill, Chief Executive
Liberum Capital Limited +44 (0) 20 3100 2222
Simon Atkinson / Tim Graham
www.sterlingenergyplc.com Ticker Symbol: SEY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
Note |
31st December 2011 |
31st December 2010 |
|
|
|
$000 |
$000 |
|
|
|
|
|
|
Revenue |
|
19,146 |
25,314 |
|
Cost of sales |
|
(6,113) |
(13,565) |
|
|
|
|
|
|
Gross profit |
|
13,033 |
11,749 |
|
|
|
|
|
|
Other administrative expenses |
|
(3,728) |
(3,649) |
|
Reversal of impairment of oil and gas assets |
|
8,269 |
- |
|
Impairment of oil and gas assets |
|
(33) |
(152) |
|
Pre-licence costs |
|
(1,282) |
(698) |
|
Total administrative expenses |
|
3,226 |
(4,499) |
|
|
|
|
|
|
Profit from operations |
|
16,259 |
7,250 |
|
|
|
|
|
|
Finance income |
|
3,212 |
224 |
|
Finance expense |
|
(1,051) |
(1,629) |
|
|
|
|
|
|
Profit before tax |
|
18,420 |
5,845 |
|
|
|
|
|
|
Tax |
|
- |
- |
|
|
|
|
|
|
Profit for the year attributable to the owners of the parent |
|
18,420 |
5,845 |
|
|
|
|
|
|
Other comprehensive income/(expense) |
|
|
|
|
Currency translation adjustments |
|
31 |
(127) |
|
Revaluation of investments |
|
- |
(12) |
|
|
|
|
|
|
Total other comprehensive income/(expense) for the year |
|
31 |
(139) |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year attributable to the owners of the parent |
|
18,451 |
5,706 |
|
|
|
|
|
|
Basic profit per share (USc) |
4 |
8.40 |
2.66 |
|
|
|
|
|
|
Diluted profit per share (USc) |
4 |
8.29 |
2.65 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|
|
Note |
31st December 2011 |
31st December 2010 |
|
|
|
$000 |
$000 |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
Intangible royalty assets |
5 |
3,221 |
824 |
|
Intangible exploration and evaluation assets |
6 |
22,455 |
20,793 |
|
Property, plant and equipment |
7 |
5,643 |
175 |
|
|
|
31,319 |
21,792 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Inventories |
|
2,872 |
901 |
|
Trade and other receivables |
|
922 |
17,695 |
|
Cash and cash equivalents |
|
115,826 |
111,679 |
|
|
|
119,620 |
130,275 |
|
|
|
|
|
|
Total assets |
|
150,939 |
152,067 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
|
148,589 |
148,573 |
|
Share premium |
|
378,859 |
378,859 |
|
Currency translation reserve |
|
(204) |
(235) |
|
Retained deficit |
|
(411,103) |
(431,380) |
|
Total equity |
|
116,141 |
95,817 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Long-term provisions |
|
20,297 |
22,231 |
|
|
|
20,297 |
22,231 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
14,501 |
34,019 |
|
|
|
14,501 |
34,019 |
|
|
|
|
|
|
Total liabilities |
|
34,798 |
56,250 |
|
|
|
|
|
|
Total equity and liabilities |
|
150,939 |
152,067 |
Consolidated Statement of Changes in Equity
|
|
|
|
|
Investment |
Currency |
|
|
|
|
|
Share |
Share |
revaluation |
translation |
Retained |
|
|
|
|
capital |
premium |
reserve |
reserve |
deficit* |
Total |
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
At 1 January 2010 |
|
148,537 |
378,859 |
12 |
(108) |
(439,161) |
88,139 |
|
Profit for the year |
|
- |
- |
- |
- |
5,845 |
5,845 |
|
Investment revaluation |
|
- |
- |
(12) |
- |
- |
(12) |
|
Currency translation adjustments |
|
- |
- |
- |
(127) |
- |
(127) |
|
Total comprehensive income for the year attributable to the owners of the parent |
|
- |
- |
(12) |
(127) |
5,845 |
5,706 |
|
Issued share capital |
|
36 |
- |
- |
- |
- |
36 |
|
Share option charge for the year |
|
- |
- |
- |
- |
1,936 |
1,936 |
|
At 31 December 2010 |
|
148,573 |
378,859 |
- |
(235) |
(431,380) |
95,817 |
|
Profit for the year |
|
- |
- |
- |
- |
18,420 |
18,420 |
|
Currency translation adjustments |
|
- |
- |
- |
31 |
- |
31 |
|
Total comprehensive income for the year attributable to the owners of the parent |
|
- |
- |
- |
31 |
18,420 |
18,451 |
|
Issued share capital |
|
16 |
- |
- |
- |
- |
16 |
|
Share option charge for the year |
|
- |
- |
- |
- |
1,857 |
1,857 |
|
At 31 December 2011 |
|
148,589 |
378,859 |
- |
(204) |
(411,103) |
116,141 |
* The share option reserve has been included within the retained deficit reserve.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Note |
31st December 2011 |
31st December 2010 |
|
|
|
$000 |
$000 |
|
Operating activities |
|
|
|
|
Cash generated from operations |
8 |
5,573 |
10,446 |
|
|
|
|
|
|
Net cash flow from operating activities |
|
5,573 |
10,446 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Interest received |
|
365 |
224 |
|
Purchase of property, plant and equipment |
|
(41) |
(178) |
|
Exploration and evaluation costs |
|
(1,695) |
(12,030) |
|
Proceeds on disposal of available for sale assets |
|
- |
20 |
|
Proceeds on disposal of PPE |
|
22 |
- |
|
|
|
|
|
|
Net cash used in investing activities |
|
(1,349) |
(11,964) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Net proceeds from issue of ordinary shares |
|
16 |
36 |
|
|
|
|
|
|
Net cash flow generated from financing activities |
|
16 |
36 |
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
4,240 |
(1,482) |
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
111,679 |
113,859 |
|
|
|
|
|
|
Effect of foreign exchange rate changes |
|
(93) |
(698) |
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
115,826 |
111,679 |
Notes to the consolidated Financial Statements
1. GENERAL INFORMATION
The preliminary results announcement is for the year ended 31 December 2011.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 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 2011 that comply with the IFRSs. The Annual Report and Accounts will be posted to Shareholders on or about 23 March 2012. The Annual Report and Accounts contains the notice for the Company's Annual General meeting which is to be held at 11.00 a.m on 19 April 2012.
2. GOING CONCERN
The Company'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 Company, its cash flows and liquidity position are described in the financial review.
The Company 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 the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Company 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
|
|
Africa |
Middle East |
Total |
|||
|
|
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
Statement of Comprehensive income |
|
|
|
|
|
|
|
Revenue |
19,146 |
25,314 |
- |
- |
19,146 |
25,314 |
|
Cost of sales |
(6,113) |
(13,565) |
- |
- |
(6,113) |
(13,565) |
|
Gross profit |
13,033 |
11,749 |
- |
- |
13,033 |
11,749 |
|
Impairment reversal |
8,269 |
- |
- |
- |
8,269 |
- |
|
Impairment provision |
(33) |
(152) |
- |
- |
(33) |
(152) |
|
Pre-licence costs |
(1,282) |
(698) |
- |
- |
(1,282) |
(698) |
|
Segment result |
19,987 |
10,899 |
- |
- |
19,987 |
10,899 |
|
Unallocated corporate expenses |
|
|
|
|
(3,728) |
(3,649) |
|
Profit from operations |
|
|
|
|
16,259 |
7,250 |
|
Finance income |
|
|
|
|
3,212 |
224 |
|
Finance expense |
|
|
|
|
(1,051) |
(1,629) |
|
Profit before tax |
|
|
|
|
18,420 |
5,845 |
|
Tax |
|
|
|
|
- |
- |
|
Profit attributable to owners of the parent |
|
|
|
|
18,420 |
5,845 |
|
|
|
|
|
|
|
|
|
|
Corporate |
Africa |
Middle East |
Total |
||||||||||
|
|
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
||||||
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
||||||
|
Other segment information |
|
|
|
|
|
|
|
|
||||||
|
Capital additions |
|
|
|
|
|
|
|
|
||||||
|
Property, plant and equipment |
41 |
178 |
- |
- |
- |
- |
41 |
178 |
||||||
|
Exploration and evaluation |
- |
- |
(2,786) |
3,045 |
4,481 |
8,985 |
1,695 |
12,030 |
||||||
|
Depreciation & amortisation |
(160) |
(299) |
(267) |
(1,003) |
- |
- |
(427) |
(1,302) |
||||||
|
Impairment reversal |
- |
- |
8,269 |
- |
- |
- |
8,269 |
- |
||||||
|
Impairment provision |
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Segment Assets and Liabilities |
159 |
297 |
12,268 |
10,421 |
9,365 |
380 |
21,792 |
11,098 |
||||||
|
Non-current assets* |
102,004 |
108,488 |
7,841 |
5,500 |
20,430 |
6,816 |
130,275 |
120,804 |
||||||
|
Segment assets** |
(1,873) |
(3,299) |
(34,692) |
(34,100) |
(19,685) |
(6,364) |
(56,250) |
(43,763) |
||||||
|
Segment liabilities*** |
(994) |
(1,873) |
(33,088) |
(34,692) |
(716) |
(19,685) |
(34,798) |
(56,250) |
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Revenue from continuing operations includes amounts of $17.5 million from one single customer (2010: $24.0 million). (100% external). |
|||||||||||||
|
|
*Segment non-current assets include $6.0 million in Cameroon (2010: $9.4 million), $13.8 million in Kurdistan (2010: $9.4 million) and $8.8 million in Mauritania (2010: Nil). |
|||||||||||||
|
|
**Carrying amounts of segment assets exclude investments in subsidiaries. |
|||||||||||||
|
|
***Carrying amounts of segment liabilities exclude intra-group financing. |
|||||||||||||
4. EARNINGS PER SHARE
The calculation of basic profit per share is based on the Group consolidated profit for the financial year of $18.420 million (2010: profit $5.845 million) and on 219,382,869 (2010: 219,332,806) ordinary shares, being the weighted average number of ordinary shares in issue. For the year ended 31
December 2011, the basic earnings per share were 8.40 US¢ per share (2010: profit 2.66 US¢ per share).
For the year ended 31 December 2011, the fully diluted earnings per share were 8.29 US¢ per share (2010: 2.65 US¢ per share). This is computed based on 222,292,000 (2010: 220,865,000) ordinary shares, being the total used for the computation of the basic earnings per share as adjusted in assuming the exercise of 2,909,000 of the 8,844,000 options granted or approved for grant as at 31 December 2011.
5. INTANGIBLE ROYALTY ASSETS
|
|
|
Group |
|
|
|
$000 |
|
|
|
|
|
Net book value at 31 December 2009 and 1 January 2010 |
|
1,818 |
|
Amortisation charge for the year |
|
(994) |
|
Net book value at 31 December 2010 |
|
824 |
|
Impairment reversal |
|
2,663 |
|
Amortisation charge for the year |
|
(266) |
|
Net book value at 31 December 2011 |
|
3,221 |
Group net book value at 31 December 2011 comprises the value of rights to future royalties in respect of the Group's agreements covering licences PSC A and PSC B 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.
An impairment assessment and any subsequent charge 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.
During the year impairment losses recognised in prior periods totalling $2.664 million have been reversed on the Chinguetti asset.
6. INTANGIBLE EXPLORATION AND EVALUATION ASSETS
|
|
|
Group |
|
|
|
$000 |
|
|
|
|
|
Net book value at 31 December 2009 and 1 January 2010 |
|
8,957 |
|
Additions during the year |
|
12,030 |
|
Impairment charge for the year |
|
(194) |
|
Net book value at 31 December 2010 |
|
20,793 |
|
Additions during the year |
|
6,474 |
|
Reimbursement of back costs on farm-out |
|
(4,779) |
|
Impairment charge for the year |
|
(33) |
|
Net book value at 31 December 2011 |
|
22,455 |
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. The impairment recorded above relates to assets held in the Africa pool of $0.04 million (2010: $0.2 million) where the estimated recoverable amount of the property, plant and equipment and E&E in the pool was insufficient to cover the carrying amount.
During the year the Group successfully completed a farm-out of the Ntem block. As part of the farm-out agreement Sterling received $4.8 million of costs previously incurred on this block.
7. PROPERTY, PLANT AND EQUIPMENT
|
|
Oil and Gas assets |
Computer and office equipment |
Total |
|
Group |
$000 |
$000 |
$000 |
|
|
|
|
|
|
Cost |
|
|
|
|
At 31 December 2009 and 1 January 2010 |
185,871 |
2,771 |
188,642 |
|
Additions during the year |
- |
178 |
178 |
|
Adjustments during the year |
(42) |
- |
(42) |
|
At 31 December 2010 |
185,829 |
2,949 |
188,778 |
|
Additions during the year |
- |
41 |
41 |
|
Disposals in the year |
- |
(26) |
(26) |
|
Adjustments during the year |
(4) |
- |
(4) |
|
At 31 December 2011 |
185,825 |
2,964 |
188,789 |
|
|
|
|
|
|
Accumulated depreciation and impairment |
|
|
|
|
At 31 December 2009 and 1 January 2010 |
(185,871) |
(2,466) |
(188,337) |
|
Charge for the year |
- |
(308) |
(308) |
|
Impairment reversal for the year |
42 |
- |
42 |
|
At 31 December 2010 |
(185,829) |
(2,774) |
(188,603) |
|
Charge for the year |
- |
(161) |
(161) |
|
Disposals in the year |
- |
12 |
12 |
|
Impairment reversal for the year |
5,606 |
- |
5,606 |
|
At 31 December 2011 |
(180,223) |
(2,923) |
(183,146) |
|
|
|
|
|
|
Net book value at 31 December 2011 |
5,602 |
41 |
5,643 |
|
Net book value at 31 December 2010 |
- |
175 |
175 |
|
Net book value at 31 December 2009 |
- |
305 |
305 |
8. CASH FLOWS FROM OPERATING ACTIVITIES
|
|
2010 |
2009 |
|
Group |
$000 |
$000 |
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
Profit before tax |
18,420 |
5,845 |
|
Finance income and gains |
(3,212) |
(224) |
|
Finance expense and losses |
1,041 |
1,615 |
|
Depletion and amortisation |
427 |
1,302 |
|
Impairment reversal |
(8,269) |
- |
|
Impairment expense |
33 |
152 |
|
Gain on disposal of property, plant and equipment |
(8) |
(8) |
|
Gain on disposal of available for sale assets |
- |
(14) |
|
Share-based payment charge |
1,857 |
1,936 |
|
Operating cash flow prior to working capital movements |
10,289 |
10,604 |
|
(Increase)/decrease in inventories |
(1,971) |
3,466 |
|
Decrease/(increase) in trade and other receivables |
16,773 |
(15,117) |
|
(Decrease)/increase in trade and other payables |
(19,518) |
11,493 |
|
|
5,573 |
10,446 |
Definitions and Glossary of Technical 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
Code or City Code The City Code on Takeovers and Mergers
Combined 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
CPF central production facility
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
EMV expected monetary value
EPF early production facility
ESP electric submersible pump
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
FSA the Financial Services Authority of the United Kingdom
G&G geological and geophysical
GBP pounds sterling
GIIP gas initially in place
GOC gas oil contact
GOR gas oil ratio
GWC gas water contact
Group the Company and its subsidiary undertakings
H2S hydrogen sulphide
HMRC Her Majesty's Revenue and Customs
HSES Health, Safety, Environment and Security
hydrocarbons organic compounds of carbon and hydrogen
km kilometre(s)
km2 square kilometre(s)
KRG Kurdistan Regional Government of Iraq
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
mmcfg/d million cubic feet of gas per day
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
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 I 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 those quantities of petroleum which are estimated, as at a given date, to be potentially recoverable from undiscovered accumulations
psi(a) pounds per square inch (absolute)
PSC production sharing contract
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 Golden Cross House, 8 Duncannon Street, London WC2N 4JF
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 Societe Mauritanienne Des Hydrocarbures
spud to commence drilling a well
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
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
Tcf trillion cubic feet of gas
TEA technical evaluation agreement
TD total depth
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
Or Code practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders
United States or US the United States of America
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