Placing of New Ordinary Share

RNS Number : 4352X

Sterling Energy PLC

14 August 2009

 



THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, JAPAN, CANADA OR AUSTRALIA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A BREACH OF THE RELEVANT SECURITIES LAWS OF SUCH JURISDICTION. 

14 August 2009 

STERLING ENERGY PLC 

('Sterling' or the 'Company') 

Placing of 4,807,315,000 new Ordinary Shares to raise £62.5 million, proposed board changes and termination of offer talks

Sterling, the AIM listed independent oil and gas exploration and production company with interests in the Middle East, Africa and the Gulf of Mexico, today announces that it has conditionally placed 4,807,315,000 new ordinary shares ('Ordinary Shares') of one pence each (the 'Placing Shares') at 1.3 pence per share (the 'Placing Price') to raise £62.5 million (before expenses) (the 'Placing'). 

Highlights: 

• Proceeds of the Placing, together with the cash the Company will receive from its operating activities, to be used to: 

• repay $35 million of debt upon receipt of the Placing proceeds;

• provide a stronger negotiating position for the Company in the ongoing sale process relating to the Company's US assets;

• strengthen the working capital position of the Group. The funds could be used to: 

  - explore the highly prospective Sangaw North block in Kurdistan; 

  - strengthen the Company's negotiating position in discussions with

    potential farm in partners for its assets in Cameroon and Madagascar; and

  - provide funding for the Company to pursue new opportunities in line with

    its exploration strategy. 

• Amended waiver agreement with banks to mid February 2011, conditional upon completion of the Placing. 

• Board to be strengthened with the addition of Alastair Beardsall as Executive Chairman and Keith Henry as a Non-executive Director. 

• Placing Price represents a discount of 52.6 per cent. to the closing middle market price on 13 August 2009. 

• By mid November the Company intends to undertake an open offer to raise approximately £20.6 million at the Placing Price, which will give Shareholders, as at the Record Date, the opportunity to subscribe for two new Ordinary Shares for every nine existing Ordinary Shares held. 

• Company is no longer pursuing any potential takeover approaches it has received.

Graeme Thomson, Chief Executive Officer of the Company said: 'This placing assures Sterling's future. It achieves the key objectives of dealing with the Company's debt issues and allows us to make real progress with our high impact exploration assets. Much of the attention will now rightly focus on our plans for drilling our highly prospective acreage in Kurdistan in the fourth quarter. We also have exciting assets in Cameroon and Madagascar and can now go forward into new ventures with a greater technical focus on activities than we have been able to in recent times.' 

Proposed Executive Chairman, Alastair Beardsall also commented: 'I am very excited with this opportunity to join the team at Sterling who successfully secured the three world class exploration opportunities. The Placing will allow the Company to implement the amended bank waiver and thus allow everyone to focus on the business of exploration which has the potential to transform the Company. The Company's strengthened financial position will enhance its negotiating position with regard to both the disposal of the USA assets and the potential farmout of some of its exploration interests. The Company has an excellent record of identifying and securing exploration projects and this funding will allow the Company to resume that very important part of the strategy.'

A circular containing a notice of an Extraordinary General Meeting of the Company, convened for 11.00 a.m. on 7 September 2009, will be sent to shareholders of the Company outlining the terms of the Placing and seeking Shareholder approval to, inter alia, enable the Directors to allot the Placing Shares in connection with the Placing. 

For further information contact:
Sterling Energy plc	([phone])
Graeme Thomson, Chief Executive  Jonathan Cooper, Chief Financial Officer
Evolution Securities	([phone])
Rob Collins  Chris Sim Neil Elliot
Citigate Dewe Rogerson	([phone])
George Cazenove Emma Woollaston

An investor presentation regarding the Placing together with the Circular will be available on Sterling's website: www.sterlingenergyplc.com. 

This summary should be read in conjunction with, and is subject to, the full text of the attached announcement. 

DISCLAIMER

Evolution Securities Limited is acting as nominated adviser and broker to the Company for the purpose of the AIM Rules. Evolution Securities Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company in relation to the Placing. Evolution Securities Limited is not acting for any other person in connection with the matters referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Evolution Securities Limited or for giving advice in relation to the matters referred to in this announcement. 

This announcement has been issued by the Company and is the sole responsibility of the Company. 

This announcement does not constitute a prospectus relating to the Company and has not been approved by the UK Listing Authority, nor does it constitute or form any part of any offer or invitation to purchase, sell or subscribe for, or any solicitation of any such offer to purchase, sell or subscribe for, any securities in the Company under any circumstances, and in any jurisdiction, in which such offer or solicitation is unlawful. Accordingly, copies of this announcement, including the appendix, are not being and must not be mailed or otherwise distributed or sent in or into or from the United States, Canada, Australia or Japan or any other jurisdiction if to do so would constitute a violation of the relevant laws of, or require registration thereof in, such jurisdiction or to, or for the account or benefit of, any United States, Canadian, Australian or Japanese person and any person receiving this announcement, including the appendix, (including, without limitation, custodians, nominees and trustees) must not distribute or send it, in whole or in part, in or into or from the United States, Canada, Australia or Japan. 

In accordance with the guidelines of the AIM Market of the London Stock Exchange, Andrew Grosse, B.Sc (Hons) Geology & Geophysics (1980), Exploration & Technical Director of Sterling Energy Plc, who has been involved in the oil industry for over 27 years, is the qualified person who has reviewed the technical information contained in this announcement.

Dealing Disclosure Requirements

Under the provisions of Rule 8.3 of the Takeover Code (the 'Code'), if any person is, or becomes, 'interested' (directly or indirectly) in 1% or more of any class of 'relevant securities' of STERLING, all 'dealings' in any 'relevant securities' of that company (including by means of an option in respect of, or a derivative referenced to, any such 'relevant securities') must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which any offer (if made) becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the 'offer period' otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an 'interest' in 'relevant securities' of STERLING, they will be deemed to be a single person for the purpose of Rule 8.3.

Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant securities' of STERLING by STERLING, or by any of its 'associates', must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.

A disclosure table, giving details of the companies in whose 'relevant securities' 'dealings' should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel's website at www.thetakeoverpanel.org.uk.

'Interests in securities' arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an 'interest' by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.

Terms in quotation marks are defined in the Code, which can also be found on the Panel's website. If you are in any doubt as to whether or not you are required to disclose a 'dealing' under Rule 8, you should consult the Panel.

  Placing of 4,807,315,000 new Ordinary Shares to raise £62.5 million and proposed board changes

1. Introduction and summary

The Board of Sterling announces today that it proposes to raise £62.5 million (approximately $103.3 million) (before expenses) by way of a placing of 4,807,315,000 new Ordinary Shares at a price of 1.3 pence per share. The net proceeds of the Placing will enable the Group to complete its 2009 and 2010 business plan, provide the Company with a strengthened negotiating position in respect of the planned sale of its US assets, enable the Company to extend its waiver for repayment of its Debt Facilities until mid-February 2011 and provide general working capital for the Group. The Placing is conditional, inter alia, upon the Company obtaining approval from its Shareholders to increase the authorised share capital of the Company, grant the Board authority to allot the Placing Shares and to disapply statutory pre-emption rights which would otherwise apply to, inter alia, the allotment of the Placing Shares. The Placing, which has been arranged and fully underwritten by Evolution Securities pursuant to the terms of the Placing Agreement, is also conditional upon, inter alia, Admission.

In addition, the Company confirms that is no longer pursuing any potential takeover approaches it has received. Given the deterioration in economic conditions and their effect on oil and gas prices during the process, the Board has not received any proposals that the Directors believe would deliver acceptable shareholder returns and believes that the Company should remain independent for the foreseeable future.

2. Information on Sterling

Sterling is a UK AIM listed exploration and production company, which is in the process of implementing its revised strategy in focusing its resources on higher impact opportunities in Africa and the Middle East. Further information on Sterling Energy can be found on the Company's website (www.sterlingenergyplc.com).

3. Background to and reasons for the Placing

The current economic and operating environment remains challenging. The Group reported an operating loss of $175.2 million for the year ended 31 December 2008 reflecting significant asset impairment charges. 

At the end of May 2009, following the dramatic weakening of the US gas price during the second half of 2008 and early 2009, Sterling had a debt gap of $25.3 million. This is calculated as the excess drawings over the level available under the terms of its Borrowing Base Facility. Based on the Borrowing Base forecasts in January 2009, the Borrowing Base was forecast to fall from $76.3 million to $58.5 million in August 2009. Since the January forecast, there has been further weakening of the US gas price, which would result in a lower Borrowing Base in August 2009 than originally forecast. In April 2009, the Company secured a waiver agreement with the banks which allowed Sterling to reschedule its loan payments until the Borrowing Base review scheduled for mid-August 2009.  

Sterling has continued to work with its lenders and other stakeholders to put a long-term solution in place to meet its repayment obligations, ahead of the expiry of the waiver. In this regard, it has succeeded in negotiating a revised waiver, as detailed further in paragraph 5 below. This is conditional upon receipt by the Company of the proceeds of the Placing and a repayment to the banks of $35 million, together with certain other items. The repayment of the remaining principal will be rescheduled until mid February 2011.

The proceeds received by the Company from the Placing which are in excess of that to be used to repay the $35 million of debt, are freely available to further the development of the Company's operating activities.

The Directors believe that raising new funds by way of the Placing is the most appropriate method of funding the Company at the present time. The Company intends to use the proceeds of the Placing together with the cash it will receive from its operating activities to:

• repay $35 million of debt upon receipt of the Placing proceeds;

• provide a stronger negotiating position for the Company in the ongoing sale process relating to the Company's US assets;

• strengthen the working capital position of the Group. The funds could be used to: 

  - explore the highly prospective Sangaw North block in Kurdistan;

  - strengthen the Company's negotiating position in discussions with potential farm in

    partners for its assets in Cameroon and Madagascar; and

  - provide funding for the Company to pursue new opportunities in line with its exploration

    strategy. 

The Board considers that an offer to existing Shareholders by way of a rights or other pre-emptive issue is not currently feasible due to the delays that would be incurred through the production and approval of a prospectus having regard in particular to the need of the Company to secure the amendment to the bank facility waiver. However, it is the Board's intention to undertake an open offer to raise approximately £20.6 million at the Placing Price (the 'Open Offer'), which will give Shareholders the opportunity to subscribe for two new Ordinary Shares for every nine existing Ordinary Shares held at the Record Date. 

It is currently envisaged that the record date for the Open Offer (the 'Record Date') will be the close of business on the date of Admission, the Ordinary Shares will trade ex-entitlement from 8.00 a.m. on 4 September 2009 and that the prospectus relating to the Open Offer will be sent to Shareholders by mid-November 2009.

Under the terms of the Placing, placees will agree conditionally upon receipt of their Placing Shares that they will only participate in such open offer on a pro rata basis. Other shareholders will be able to apply for excess allocation to the extent that shares are available.

In conjunction with the Open Offer, it is the Company's current intention to undertake a share consolidation.

Further details surrounding the Open Offer and share consolidation will be announced in due course.  

Significance of the Placing

In the event that Shareholders do not approve the Resolutions, the Placing will not proceed and the Board will need to consider alternative sources of funding, which may or may not be forthcoming. In particular, the Company will not have sufficient cash resources to enable it to effect the proposed waiver amendment by reducing the current debt gap to zero before the next Borrowing Base review, which was scheduled for mid-August 2009 under the existing waiver. In the absence of the revised waiver, the Board would then need to consider alternative courses of action to reduce the Company's outstanding debt under the Senior Facility Agreement to the further reduced Borrowing Base. The Company could seek to renegotiate the terms of the existing waiver and to secure appropriate alternative financing.

If the Company was not able to secure appropriate alternative financing and renegotiate the terms of the existing waiver, it would be unable to make the required further reduction in outstanding debt following the Borrowing Base review scheduled for mid-August 2009. In such an event, the lenders under the Debt Facilities could be in a position, as would normally be the case in agreements of this nature, to demand repayment in full of all of the outstanding debt under the Debt Facilities and the Company could potentially face the risk of insolvency.

4. Sangaw North 

Full details regarding Sangaw North are contained within the RISC competent persons' report contained within the Circular and the following summary should be read in conjunction with and not in substitution for the RISC report.

Sterling currently has a 53.33 per cent. interest in the Sangaw North block PSC and acts as operator on the field. The block covers an area of 492 km2, and lies approximately 140 km south east of Erbil, 50 km south west of Suleimaniah, 50 km south east of the giant Kirkuk oil field and on trend with both the Taq Taq oil discovery (90 km away) and the Chemchemal gas and condensate discovery (30 km away). The block contains a large sub-surface anticline, defined by 313 km of recently acquired full fold 2D seismic. 

The Sangaw North block PSC was signed on 10 November 2007 and has been awarded for an initial five year term comprising a first sub-period of three years, and a second of two years. Sterling has fulfilled its first sub-period commitment to acquire 200 km of 2D seismic, and is planning to drill the second sub-period commitment of one exploration well also within the first sub-period. Expenditure over the first three year exploration period, including initial costs and an accelerated exploration well of $30 - 35 million, is expected to be approximately $45 - 50 million. The minimum work obligations for each sub-period must be completed for entitlement to accede to the next sub-period. Each sub-period may be extended, but the maximum term of the exploration contract is seven years. 

The Sangaw North block PSC is subject to back-in rights for up to 40 per cent. by the KRG and a third party nominated by the KRG. The KRG has the right to participate through a public company in the contract area at between 5 and 25 per cent. The KRG can also nominate a third party for between 5 and 20 per cent. interest in the contract area. On a fully diluted basis, the combined KRG and third party share will not exceed 40 per cent. The KRG announced on 25 June 2008 that the Korea National Oil Company would be awarded the third party interest of 20 per cent. in the Sangaw North block PSC. If the KRG assigns the remaining interest to which it has back-in rights then Sterling's fully diluted interest will reduce to 40 per cent.

In September 2008, Sterling entered into an agreement with Addax Petroleum, a partner in the nearby Taq Taq field, in which Addax acquired a 26.67 per cent. interest in the Sangaw North block, reducing Sterling's interest to 53.33 per cent., in return for a commitment to fund past costs, the future exploration programme of 2D seismic and an exploration well. 

The Sangaw North block lies in an attractive hydrocarbon exploration area of prolific charge with proven giant oil and large gas discoveries, implying a low play risk, commensurate with the KRG's own classification of this block as a 'Low Exploration Risk Area'. This low risk status is evidenced by the recent drilling success in the region with 45 per cent. of exploration wells drilled deemed to be a success. Sterling has identified a large prospect, with best estimate gross prospective resources in the Upper Cretaceous reservoirs of around 800 mmbbls within the Sangaw North block PSC (derived from the best estimate stock tank oil initially in place ('STOIIP') of 2779 mmbbls). The quantity and quality of reservoir rock expected to be encountered, and the degree to which the structure will be filled is uncertain, leading to a wide range in estimated resources. The prospect risk takes into account the primary reservoir being Upper Cretaceous, which is proven to be productive regionally, but not as prolific as Tertiary reservoirs discovered to date, and the structural modelling which indicates that much of the structure developed relatively recently (within the last few million years). The primary contributor to the estimated resource is the very large areal size of the mapped closure. 

On-block prospective resources for Sangaw North are estimated for the Upper Cretaceous as follows:

All figures in MMstb	Gross (100%)			Current Net Working Interest attributable to Sterling (53.33%)			Risk Factor
	Low Estimate	Best Estimate	High Estimate	Low Estimate	Best Estimate	High Estimate
Cretaceous Oil Prospective Resources	179	804	1664	95	429	887	0.27

Source: RISC

All figures in MMstb	Gross (100%)			Fully diluted* Net Working Interest attributable to Sterling (40%)			Risk Factor
	Low Estimate	Best Estimate	High Estimate	Low Estimate	Best Estimate	High Estimate
Cretaceous Oil Prospective Resources	179	804	1664	72	322	666	0.27

*If the KRG's back-in rights are fully exercised, then Sterling's working interest will reduce to 40 per cent.

Source: RISC

RISC considers that condensate and gas are as least as likely to be discovered at Sangaw North as oil.

Oil and gas discoveries have also been made throughout the region in Jurassic and Triassic aged formations, which are typically only penetrated when they occur at relatively shallow depths. DNO International's 2008 Hawler-1 well, 160km to the north-west, tested at 9,000 bopd from the Jurassic at greater depths, similar to those predicted at Sangaw North. Sterling estimates that the Jurassic and Triassic formations on the Sangaw North block have the potential to contain 3 billion barrels of STOIIP (best estimate), which RISC estimates has a chance of success of around 10 per cent. 

RISC has considered the indicative economics for Sangaw North based on a conceptual development of 66 wells (58 producers and 8 injectors) drilled over the period 2013 to 2021, a 220,000 bopd production facility, and a 70 km x 24' pipeline in production from 2015 to 2045. 

This indicative analysis suggests an NPV10 (net present value) of $2.4 - 3.2/bbl for oil prices ranging from $60 - 80/bbl, equivalent to an unrisked NPV10 of $1.0 - 1.4 billion for Sterling's current 53.33 per cent. working interest in the best estimate on-block resources. If the KRG backs in fully to reduce Sterling's working interest to 40 per cent. the NPV10 would be reduced to $0.8 - 1.0 billion. This indicative economic analysis is a guide to oil success case outcomes, and does not represent an estimate of the current market value of the asset.

5. Bank facility waiver 

Under its Senior Facility Agreement, the Company has a $125.0 million reserve-backed revolving facility with six independent banks, Natixis as agent and technical bank. During the January 2009 Borrowing Base review, following the major fall in US gas prices during the second half of 2008 and early 2009, the Borrowing Base was forecast to fall from $76.3 million to $58.5 million in August 2009. Since the January forecast, there has been further weakening of the US gas price, which would result in a lower Borrowing Base in August 2009 than originally forecast. Under the Borrowing Base facility, at the end of July 2009, Sterling had an outstanding balance of $99.3 million. 

Additionally, Sterling has drawn down $11.1 million under the Corporate Facility. 

In April 2009, Sterling signed a waiver agreement with the banks which allowed Sterling to reschedule its loan repayments until the next Borrowing Base review scheduled for mid August 2009. The Company has recently negotiated a revised waiver agreement which expires in February 2011 and contains various amendments to the terms of the loan, including an increased interest margin and an increase in fees payable dependent on the timing of the elimination of the debt gap, prior bank approvals of certain capital costs and a monthly repayment of not less than $1.0 million under a cash sweep mechanism.

Conditional on receipt of the proceeds of the Placing and repayment to the banks of $35 million, the outstanding principal under the Senior Facility Agreement will be deferred to mid February 2011. The existing waiver period has been extended until 9 September 2009 to cover the period between its expiry in mid-August and the receipt of proceeds of the Placing.

The amended waiver includes a further revised interest margin to 5 per cent. over LIBOR on the Borrowing Base Facility and 8.5 per cent. over LIBOR on the Corporate Facility, certain revisions to the method of calculating the Borrowing Base, a reduction in the total commitments in line with the amounts outstanding from time to time, a prohibition on any further drawdowns under the loan facility, a reduction in the fees payable dependent on the earlier elimination of any debt gap which would hypothetically exist if the Borrowing Base were to be redetermined (albeit that there is to be no formal redetermination of the Borrowing Base before the end of the waiver period) from $4.5 million to $2 million, and a continuation of the monthly cash sweep mechanism which relates to the cashflows from producing assets.  The Company is also required to pay a waiver fee.

6. Operational Update 

6.1 Kurdistan

An independent technical review of Sangaw North was undertaken by RISC, following the processing and interpretation of the 313 km full fold 2D seismic survey. RISC's best estimate of the unrisked prospective resources for the Cretaceous prospect on Sangaw North increased to 804 mmbbls (gross), with further deeper potential in the Jurassic and the Triassic identified. RISC estimates the chance of success to be 27 per cent. The full RISC report will be included in the Circular. The Company is in the process of securing a rig and plans to commence drilling in Q4 2009. It is anticipated that the well will take 150 days to drill to its total depth of between 3,500 and 4,000 metres and to test.

The Directors expect that, provided the initial well is successful, the use of an early production system would enable first production from Sangaw North in 2011.  

6.2 USA

The Company remains committed to disposing of its USA business, and would use the sale proceeds to pay down bank debt and for working capital purposes. US gas prices have remained weak but have been relatively stable in recent weeks. In conjunction with this period of stability, the Company has seen renewed interest in its USA assets and negotiations are now ongoing.  

Independent third party and Company reserve reports, effective 1 April 2009, estimated proved reserves of 53 Bcfe and probable reserves of 41 Bcfe (31 December 2008: 61 Bcfe and 42 Bcfe respectively) of which 73 per cent. is gas and 27 per cent. is oil. The decline of 8 Bcfe in proved and probable reserves was the result of 2 Bcfe of production, the effect of lower gas prices and a change in categorisation to possible reserves.

6.3 Cameroon

Sterling has significantly progressed its studies of its wholly owned Ntem block in Cameroon and has identified multiple prospects and play types in the Cretaceous and Tertiary including the four prospects Maxwell, Discovery, Atlantis and Helena, which the Directors believe have a cumulative potential in excess of 1.5 billion barrels. Sterling is currently seeking farm-in partners and understands that the border dispute with Equatorial Guinea may be settled soon. Ntem is an undrilled block with discoveries to the North, South and East. It is one of the largest undrilled prospective offshore blocks in this part of West Africa. The Company must drill a well within 18 months of the resolution of the border dispute.

6.4 Madagascar

In Madagascar, drilling is not expected before the end of 2010 due to political changes following a period of unrest. The Company's partner and operator, ExxonMobil, is focused on drilling a large structure on the Ampasindava block, where Sterling retains a 30 per cent. interest and where Sterling is partially carried with approximately $12 million of the Company's net costs covered. Following an extension agreed with Exxon, a well participation decision has been deferred to the end of December 2009. The Company will seek farm-in partners.  

Sterling also retains its 100 per cent. interest in the Ambilobe block. The Company has recently received a licence extension to the end of November 2010. The Company has completed the reprocessing and re-interpretation of seismic data. This has confirmed the presence of multiple large leads. The Company will seek farm-in partners.

7. Current trading and prospects

The Company published its annual report and accounts for the year ended 31 December 2008 on 5 June 2009. Since the publication, there have been the following significant developments to Sterling's current trading position and prospects.

As set out above, the Company has recently negotiated an amendment of the waiver agreement signed in April 2009. Under the terms of the amended waiver agreement, conditional upon receipt of the proceeds by the Company of the Placing, the Company will repay $35 million of the principal outstanding under the Senior Facility Agreement and $1 million per month for the period of the amended waiver which runs to February 2011. During this amended waiver period there will be no formal re-calculation of the Borrowing Base. The details of this waiver are set out in paragraph 5 above.

During the first half of the year, total production was 4,563 boepd (full year 2008: 4,809 boepd). US production decreased to an average of 21.2 mmcfge/d (full year 2008: 22.7 mmcfge/d). This was a result of natural production decline rates and a deferral of Q2 capital expenditure.  Net Chinguetti Field production for the first half of the year was 1,028 bopd (full year 2008: 1,025 bopd), with natural decline rates being offset by the phase 2b drilling and workover programme.  

Given the general commodity price environment, the Company's oil and gas assets may be further impaired. Since the start of the year, USA gas prices have weakened further which may result in further impairments of USA oil and gas assets when ceiling tests are conducted. Due to the current commodity price environment, the Chinguetti Phase 3 programme may not be economic and, in the absence of Phase 3, the Chinguetti Field could be abandoned as early as 2011.

8. The Placing

The Company proposes to raise approximately £60.8 million (approximately $100.5 million) (net of expenses) through the issue of the Placing Shares at the Placing Price. The Placing Price represents a discount of 52.6 per cent. to the closing middle market price of 2.74 pence per Ordinary Share on 13 August 2009, being the last practicable date prior to this announcement. The Placing Shares will represent approximately 67.4 per cent. of the Company's issued ordinary share capital immediately following Admission.

Strategic investor

As part of the Placing, it is currently envisaged that Waterford will subscribe for $46.0 million equivalent of 2,139,847,102 Placing Shares at the Placing Price. Waterford's subscription will represent 29.99 per cent. of the enlarged issued share capital of the Company at Admission. The terms and conditions of Waterford's subscription are summarised in the paragraph below headed 'Subscription Agreement'.

The registered shareholders of Waterford are Weighbridge Trust Limited and Weighbridge Trust Administration Limited, who act as nominee for a Guernsey based Discretionary Trust for the benefit of Michael Kroupeev and his family.

Michael Kroupeev holds an MBA from the London Business School and has specialised in the financing of oil and gas and other energy related projects in emerging markets. He has been directly involved in the capital raising for natural resource projects and in acquiring, restructuring, developing and divesting such assets. Michael was an executive director of Dana Petroleum plc from its initial restructuring in 1994 and left its board in 1999. Michael has also served as an executive director of Sibir Energy plc (1999-2000) and is a director of Waterford.

Subscription Agreement

As a strategic investor, Waterford has entered into a subscription agreement with Sterling, pursuant to which Waterford has agreed, subject to the passing of the Resolutions, to subscribe for a number of Placing Shares, up to a maximum amount of £28,860,000 but, in any event, no more than would represent one Ordinary Share less than thirty per cent. of the issued share capital of Sterling immediately following Admission. Under the terms of the subscription agreement, Waterford has undertaken not to increase its shareholding in the Company following Admission to, or in excess of, 30 per cent. of the issued share capital of the Company from time to time until 31 December 2009. If the Board withdraws its recommendation that Shareholders vote in favour of the Resolutions or acts to frustrate the passing of the Resolutions such that the Resolutions are not passed, Sterling has agreed to pay to Waterford a fee equal to one per cent. of the market capitalisation of the Company at such time. If Waterford fails to comply with its obligations under the agreement to subscribe for the number of Placing Shares to be allocated to it pursuant to the Placing, Waterford has agreed to pay to Sterling a fee also equal to one per cent. of the market capitalisation of the Company at such time. The damages which either party would be entitled to claim against the other party arising from termination of the agreement, in accordance with its terms, as a result of gross negligence or wilful misconduct of that party are capped at £1 million.

The Placing Agreement

Pursuant to the terms of the Placing Agreement, Evolution Securities has conditionally agreed to use its reasonable endeavours, as agent for the Company, to place the Placing Shares at the Placing Price with certain institutional and other investors. The Placing has been fully underwritten by Evolution Securities. The Placing Agreement is conditional upon, inter alia, the Resolutions being duly passed at the EGM and Admission becoming effective on or before 8.00 a.m. on 8 September 2009 (or such later time and/or date as the Company and Evolution Securities may agree, but in any event by no later than 8.00 a.m. on 31 October 2009).

The Placing Agreement contains warranties from the Company in favour of Evolution Securities in relation to, inter alia, the accuracy of the information contained in the Circular and certain other matters relating to the Group and its business. In addition, the Company has agreed to indemnify Evolution Securities in relation to certain liabilities it may incur in respect of the Placing. Evolution Securities has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, for force majeure or in the event of a material breach of the warranties set out in the Placing Agreement.

Settlement and dealings

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that such Admission will become effective and that dealings will commence at 8.00 a.m. on 8 September 2009.

The Placing Shares will, when issued, rank pari passu in all respects with the existing Ordinary Shares, including the right to receive dividends and other distributions declared following Admission. It is expected that CREST accounts will be credited on the day of Admission and that share certificates (where applicable) will be dispatched by first class post by 22 September 2009.

Directors' participation in the Placing

The following Directors have agreed to subscribe for Placing Shares at the Placing Price. Immediately after Admission, it is expected that these Directors will have the following shareholdings:

Director	No. of Placing Shares subscribed for in the Placing	Total no. of Ordinary Shares held following the Placing	Percentage of the enlarged issued share capital
Richard Stabbins	4,250,000	9,474,272	0.13%
Graeme Thomson	20,000,000	37,345,510	0.52%
Andrew Grosse	15,384,615	22,785,088	0.32%
Jon Cooper	769,230	1,269,230	0.02%

9. Proposed Board 

As part of the Proposals it is currently envisaged that, conditional upon the passing of the Resolutions at the EGM, Alastair Beardsall will join the board of the Company as Executive Chairman. The Placing is conditional upon the appointment of Alastair Beardsall.

Alastair Beardsall, aged 55, has been involved in the oil industry for 28 years; the first 12 years were on international assignments with Schlumberger, the oil-field services company. From 1992 he began working for independent exploration and production operators; with increasing responsibility for specific exploration, development and production ventures. From 2001 to August 2003, he provided advice to Waterford as a paid consultant. Since August 2003, Alastair has been Executive Chairman of Emerald Energy plc ('Emerald') during which time Emerald has grown from a market capitalisation of less than £8 million, entering the FTSE 250 index in January 2009 and is currently subject to a takeover offer from Sinochem Resources UK Limited, valuing Emerald at £7.50 per share or £532 million for the entire issued share capital of Emerald.

It is expected that following the completion of the EGM, Keith Henry will join the Board as a Non-executive Director. Keith Henry, aged 64, has over 33 years of international business experience in the development, ownership, design and construction of major facilities worldwide. He was with Brown & Root Limited for 23 years, the last five of which were as Chief Executive responsible for the Europe, Africa and FSU regions. From 1995 to 1999 he was Chief Executive of National Power Plc, and then Chief Executive of Kvaerner Engineering and Construction Ltd until June 2003. He serves as Chairman of Regal Petroleum plc and Helius Energy plc, non-executive director of Emerald and also serves as a non-executive director and adviser to a number of companies in the engineering, services and energy sectors. He is a Fellow of the Royal Academy of Engineering.

Following their appointment, Dr Richard Stabbins will step down from the role of non-executive Chairman, but will continue with the Company as a Non-executive Director. In addition, Graeme Thomson and Peter Wilde have agreed to step down from their roles as Chief Executive Officer and Non-executive Director, respectively, by 31 December 2009. 

Graeme has been Chief Executive Officer through the most difficult and turbulent of times for Sterling. He has been pivotal in ensuring the Company has achieved its objectives of an independent and strong future with great upside potential. Peter has been a director since inception and has helped to guide the Company, not least as Chairman of the Audit Committee. The Board wishes to thank both of them for their unwavering and positive approach. 

The Company is keen to ensure that it maintains appropriate corporate governance controls for a company of its size and stage of development. The Company will therefore ensure that it maintains at least three non-executive directors on the Board at any one time. It is therefore expected that the Company will look to appoint a suitable non-executive director to the Board prior to Mr Wilde stepping down as a Director.

10. Working capital

In the opinion of the Directors and assuming the completion of the Placing, the working capital available to the Group is sufficient for the Group's present requirements, that is for at least 12 months following Admission. However, in the event that Shareholders do not approve the Resolutions, the Placing will not proceed and the Board will need to consider alternative sources of funding, which may or may not be forthcoming. In particular, the Company will not have sufficient cash resources to enable it to effect the proposed waiver amendment by reducing the current debt gap to zero before the next Borrowing Base review, which was scheduled for mid-August 2009 under the existing waiver. In the absence of the revised waiver, the Board would then need to consider alternative courses of action to reduce the Company's outstanding debt under the Senior Facility Agreement to the further reduced Borrowing Base. The Company could seek to renegotiate the terms of the existing waiver and to secure appropriate alternative financing.

If the Company was not able to secure appropriate alternative financing and renegotiate the terms of the existing waiver, it would be unable to make the required further reduction in outstanding debt following the Borrowing Base review scheduled for mid-August 2009. In such an event, the lenders under the Debt Facilities could be in a position, as would normally be the case in agreements of this nature, to demand repayment in full of all of the outstanding debt under the Debt Facilities and the Company could potentially face the risk of insolvency.

In the event that the Company is able to achieve a successful sale of its US assets, any proceeds received by the Company will be utilised to pay down the outstanding debt under its Debt Facilities.

11. Related Party Transactions

INVESCO plc ('INVESCO') and Dennis O'Brien are classified as related parties of the Company for the purposes of the AIM Rules. Accordingly, the issue of 1,149,600,476 Placing Shares to INVESCO and 190,000,000 Placing Shares to Dennis O'Brien pursuant to the Placing, representing 23.9 per cent. and 4.0 per cent. respectively of the total Placing Shares to be issued and 16.1 per cent. and 2.7 per cent. respectively of the enlarged issued share capital of the Company, will be classified as a related party transaction for the purpose of Rule 13 of the AIM Rules. The Directors, having consulted with Evolution Securities, consider that the terms of the subscription by INVESCO and Mr O'Brien for Placing Shares are fair and reasonable insofar as Shareholders are concerned.

In providing advice to the Directors, Evolution Securities has taken into account the Directors' commercial assessments.

12. Extraordinary General Meeting

An EGM is to be held on 7 September 2009 at the offices of Ashurst LLP at Broadwalk House, 5 Appold Street, London EC2A 2HA, at 11.00 a.m., at which the following Resolutions will be proposed for the purposes of implementing the Placing:

• Resolution 1 will be proposed as an ordinary resolution to appoint Alastair Beardsall as a director of the Company, such appointment to take effect from Admission.

• Resolution 2 will be proposed as a special resolution conditional upon the passing of Resolution 1 to increase the authorised share capital of the Company, to authorise the Directors to allot new Ordinary Shares up to an aggregate nominal amount of £48,073,150 and to disapply Shareholders' statutory pre-emption rights up to the same aggregate nominal amount.

  Proposed Directors' Disclosure

• Alastair Beardsall

There is no information in relation to the appointment of Mr Alastair John Beardsall which is required to be disclosed pursuant to Rule 17 of the AIM Rules for Companies other than as follows:

1.1    Current Directorships

Emerald Energy plc

Emerald Energy (Syria) Limited

Emerald Energy Peru A Limited

Emerald Energy Peru B Limited

SNG Overseas Limited

1.2    Past Directorships

First Calgary Petroleums Limited 

2.     Keith Henry

There is no information in relation to the appointment of Mr Keith Nicholas Henry which is required to be disclosed pursuant to Rule 17 of the AIM Rules for Companies other than as follows:

2.1    Current Directorships:

Aegis Defence Services Limited

Emerald Energy plc

Helius Energy plc

HPR Holdings Limited

Reynolds Partners Limited

Regal Petroleum plc 

2.2    Past Directorships:

Burren Energy plc

First Calgary Petroleums Limited

Number 151 Proprietors Limited 

Petrojarl ASA

Petroleum Geo-Services ASA

Punj Lloyd Limited

Simon Carves Limited

South East Water Limited

  PLACING STATISTICS

Placing Price	1.3p
Number of Ordinary Shares in issue as at the date of this announcement	2,325,510,585
Number of Placing Shares being placed on behalf of the Company	4,807,315,000
Estimated proceeds receivable by the Company, net of expenses	£60.8 million
Number of Ordinary Shares in issue following Admission	7,132,825,585
Number of Placing Shares as a percentage of the enlarged issued ordinary share capital of the Company following the Placing	67.4 per cent.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Latest time and date for receipt of Forms of Proxy	11.00 a.m. on 5 September 2009
Extraordinary General Meeting	11.00 a.m. on 7 September 2009
Admission and dealings in the Placing Shares expected to commence on AIM	8.00 a.m. on 8 September 2009
Expected date for CREST stock accounts to be    credited for Placing Shares in uncertificated form	8 September 2009
Expected date for posting of share certificates for Placing Shares	by 22 September 2009

  DEFINITIONS AND GLOSSARY

The following definitions apply throughout this document unless the context otherwise requires:

'Admission'	admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with rule 6 of the AIM Rules
'AIM'	a market operated by the London Stock Exchange

'AIM Rules'	the AIM Rules for companies governing the Admission to and operation of AIM as published by the London Stock Exchange from time to time
'Bcf'	billion cubic feet
'Bcfe'	billion of cubic feet of gas equivalent
'bbl'	US barrel
'bopd'	barrels of oil per day

'boepd'		barrels of oil equivalent per day
'Borrowing Base'		the amount calculated by reference to the net present value of future loan life cash flows from included field interests used to determine availability (subject to commitments and subject to compliance with a projected debt service cover ratio) under the Senior Facility Agreement;
'Borrowing Base Facility'		the facility made available under the Senior Facility Agreement
'Circular'		The shareholder circular to be dated 14 August 2009 containing details of the Placing and the EGM notice
'Chinguetti Field'		the oil field located in the area governed by PSC B, offshore Mauritania as set out in the Chinguetti development and production programme dated 20 May 2004
'Company' or 'Sterling'		Sterling Energy PLC
'Corporate Facility'		the facility made available with Natixis under the Corporate Facility Agreement
'Corporate Facility Agreement'		$15 million subordinated corporate facility agreement dated 26 September 2007 (as amended) of the Company;
'Debt Facilities'	the Borrowing Base Facility and the Corporate Facility;
'Directors' or 'Board'		the directors of the Company

'EGM' or 'Extraordinary General Meeting'	the extraordinary general meeting of the Company to be held at 11.00 a.m. on 7 September 2009
'EGM Notice'	the notice convening the EGM which will be set out at the end of the Circular

'Evolution Securities' or 'Evolution'

Evolution Securities Limited, the Company's nominated adviser

'Form of Proxy'

the form of proxy for use in connection with the EGM

'Group'

the Company, its subsidiaries and its subsidiary undertakings

'KRG'	Kurdistan Regional Government
'LIBOR'	US dollar London Inter-Bank Offered Rate
'London Stock Exchange'	London Stock Exchange plc
'Mauritania'	the Islamic Republic of Mauritania

'mcf'

thousand cubic feet of gas

'mcfge/d'

thousand cubic feet of gas equivalent per day

'mmbbl'

million barrels of oil

'mmcfge/d'

million cubic feet of gas equivalent per day

'MMstb'	million US stock tank barrels
'Official List'	the Official List of the UK Listing Authority

'Ordinary Shares'

ordinary shares of 1p each in the capital of the Company

'Placing Agreement'	the agreement dated 14 August 2009 between the Company and Evolution Securities relating to the Placing, details of which are set out in paragraph 8 of this announcement
'Placing'	the proposed placing of the Placing Shares as described in this announcement
'Placing Price'	1.3 pence per Placing Share
'Placing Shares'	the 4,807,315,000 new Ordinary Shares of 1p each to be issued in connection with the Placing
'Proposals'	together, the Placing and the appointment of Alastair Beardsall as a director of Sterling
'Proposed Directors'	the proposed directors of the Company

'prospects'

undrilled geologic formations (whether structural or stratigraphic) that on the basis of geoscientific evidence and/or modelling are believed to have the potential to contain commercially viable quantities of hydrocarbon

'PSC'	production sharing contract
'PSC B'	the production sharing contract between the Islamic Republic of Mauritania and certain oil companies including Woodside dated 9 July 1998

'Resolution 1'	the first resolution to be proposed at the EGM, as set out in the EGM Notice
'Resolution 2'	the second resolution to be proposed at the EGM, as set out in the EGM Notice
'Resolutions'	the resolutions set out in the EGM Notice
'RISC'	Resource Investment Strategy Consultants Pty Ltd, independent consultants

'Senior Facility Agreement'	$125 million borrowing base facility agreement dated 26 September 2007 (as amended) of the Company and Sterling Energy USA Inc and others
'Shareholders'	holders of Ordinary Shares

'UK' or 'United Kingdom'

the United Kingdom of Great Britain and Northern Ireland

'Waterford'	Waterford Finance & Investment Limited;
'Waterford Group'	Waterford, its parent undertakings, subsidiaries and subsidiary undertakings
'$' or 'US dollar'	the lawful currency for the time being of the United States. For the purpose of currency calculations included in this document the Directors have used a rate of (£1 : $1.6536), as derived from the Financial Times on 13 August 2009, being the latest practicable date prior to the publication of this announcement

 

END

 

 

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