2007 Interim Results
Sterling Energy PLC
26 September 2007
26 September 2007
STERLING ENERGY PLC
2007 INTERIM RESULTS
EXCITING DEVELOPMENTS AHEAD
Highlights
• $147 million cash acquisition of US onshore Whittier Energy Corp
('WEC') completed at the end of March 2007 and successfully integrated
• WEC increased Group 2P reserves by over 85% (c.11 million boe)
and added approximately 8 million boe to contingent resources
• 20 wells drilled in USA in H1 2007 with a success rate of 85%,
adding to proven reserves and production
• Revenues in the first half of $45.1 million (H1 2006: $45.3 million)
• Group production averaged 4,910 boepd in the first half (H1 2006: 4,671
boepd)
• Profit for the first half of $1.4 million (H1 profit 2006: $8.2 million,
year 2006 loss $38.6 million) reduced by impact on non-cash depletion of
the end 2006 Mauritanian reserve downgrade and deferred tax added to the
WEC cost
• Earnings before interest, tax, depletion and amortisation ('EBITDA') of
$27.1 million in the first half (H1 2006: $27.6 million)
• 30 June 2007 unrestricted cash balance of $26 million and 25 September 2007
balance of $21 million with $14 million of undrawn facilities
Prospects and Outlook
• Revenues set to grow in the second half
• Group production estimated at over 6,100 boepd for the third
quarter, an increase of 25% over H1
• Bank funding being re-financed by new 6 year $265 million Group
facilities, with initial borrowing base expected to total c. $160-5 million
• A further 20 USA wells expected in the second half and c.40
planned for 2008 aiming to materially increase US reserves
• These wells are expected to take USA production to over 6,000 boepd by
end 2007, an increase of over 20% since WEC was purchased. Further
growth planned for 2008
• Mauritania second development phase to commence in early 2008 with 2-3
wells and 2-3 workovers. The Operator forecasts that production will
double from its current level
• Two exploration wells offshore Gabon by mid 2008
• Madagascar offshore seismic identifies significant prospects. Early
drilling anticipated.
Dick Stabbins, Sterling's newly appointed Chairman, said:
'I am confident that we are well positioned to add value from our drilling
programme. This will be achieved through exploration in Gabon, Madagascar and
the AGC, from further exploration, appraisal and development work in the USA,
from a second development phase in Mauritania and by adding further licence
interests in our core areas of USA, Africa and the Middle East. We have a
healthy cash flow to invest and I am confident about Sterling's outlook.'
For further information contact:
Sterling Energy plc (+44 207 405 4133)
Harry Wilson, Chief Executive
Graeme Thomson, Finance Director
Evolution Securities (+44 207 071 4311)
Rob Collins
Citigate Dewe Rogerson (+44 207 638 9571)
Media enquiries: Martin Jackson
Analyst enquiries: Kate Delahunty
www.sterlingenergyplc.com Ticker Symbol: SEY
STERLING ENERGY PLC
2007 INTERIM RESULTS
CHAIRMAN'S STATEMENT
Sterling is well placed with a healthy cash flow from our US and Mauritanian
production base. We are improving our bank facilities with longer repayment
terms and with greater flexibility as we increase our asset base. In the
near-term, we expect to participate in high impact exploration drilling in
Madagascar, Gabon and the AGC. New licence awards in our core areas of the USA,
Africa and the Middle East are also anticipated.
Our interim results are set out in detail below. Whilst there are many
challenges to confront, I believe that we have all the resources to succeed and
I am confident about our future.
I believe that oil companies must drill to add material value. We are developing
a portfolio of attractive prospects, so the coming months will be exciting. Risk
is part of our business and we have shown through innovative farm-outs and other
deals that we are able to use third party funding for part or all of the more
risky early exploration work. We will continue to adopt such an approach and to
balance risk and reward with our resources.
This is my first message to Shareholders since becoming Chairman after the AGM
in July. On behalf of the Board I would like to express our thanks to Richard
O'Toole who stepped down after almost seven years. He helped to grow the Company
from an idea to the international energy company it is today and remains a
significant shareholder.
The Sterling team is dedicated and determined to succeed; they have considerable
skills and the necessary positive attitude. I have already been greatly
impressed by them and I am confident that Sterling has an exciting and
profitable time ahead.
Richard Stabbins
25 September 2007
OPERATIONS REPORT
United States Operations
Strong, predictable production, diversified portfolio
The purchase of WEC has markedly increased US production from 9 mmcfge/d in the
first quarter of 2007 to 28 mmcfge/d in the second quarter. It also diversified
the production base away from the shallow Gulf of Mexico into the onshore USA,
especially Texas and Louisiana. In the first two months of the third quarter
this has averaged 29 mmcfge/d and is expected to rise again by year-end through
drilling new wells and by bringing onstream previously successful wells.
Although production has initially grown a little slower than hoped for due to
delays in securing drilling rigs and equipment, the outlook for progress in the
US operations remains excellent.
Sterling paid a total of c.$147 million in cash for the issued share capital of
WEC and assumed other net liabilities of c.$56 million at closing at the end of
March 2007. WEC was an independent oil & gas exploration and development
company headquartered in Houston, Texas with assets primarily onshore in South
Texas, Permian Basin, onshore Gulf Coast of Texas and Louisiana.
When combined with Sterling's existing presence in the shallow Gulf of Mexico,
Sterling now has USA assets that provide it with over 120 bcfge in 2P reserves,
of which approximately 65% fall into the proven category, 50-100+ bcfge in
contingent resources, as well as an extensive inventory of identified, leased
and in many cases permitted drilling prospects from which to build its reserves.
Over half of the production is operated by Sterling. Production is approximately
85% in natural gas, a commodity with continued strong demand. Whilst prices
were weaker in the third quarter our revenues were partly protected through
hedges. Gas prices have since recovered and futures prices for the next two
years are at average levels of $7.7/mcf.
The USA operations serve to provide Sterling with a steady, reliable and
relatively predictable cash flow from its producing assets and exposure to
important upside and growth through both the drill bit and by selectively
purchasing assets in its core areas.
Operations activity to date in 2007
In 2007, Sterling expects to participate in a record number of 40 new wells.
The first half saw 20 new wells drilled by Sterling (and WEC) of which 17 have
been successful and now put on production.
One of these wells, the Yegua #1 is the first well in the Company's Austin Chalk
property. This well, located in Burleson County, Texas, is a horizontal well
which was drilled to a depth of c.15,500 feet. It was completed and turned to
sales in early July. The well had an initial production rate, net to Sterling's
42.5% NRI, of just over 2 mmcfge/d and has recently settled around 1 mmcfge/d,
as expected. Importantly, the well demonstrates the Company's ability to drill
and complete these wells in the Austin Chalk formation. A second well, Rocket 2
(19.6% NRI), is being drilled in Grimes County and is expected to be completed
next month and be on production in weeks. The site for the third well is being
prepared (39.5% NRI) and the programme will continue with further drilling
additional wells on this Austin Chalk acreage.
Success has continued in the Mauriceville field located in Orange County, Texas.
This field is the result of a 60 square mile 3-D seismic shoot conducted in
late 2005 which resulted in production from the Nodasaria and the Yegua sands
located at approximately 8,000 and 12,000 feet in depth. In June, the ninth
well on the field, the Boilermaker C-A, was tested with a net production rate of
0.2 mmcfge/d to its NRI of 2.9%.
In addition, there are eight further wells that have been successfully drilled
and logged and are currently waiting on either completion or pipeline
connections. These wells are expected to take production to over 30 mmcfge/d by
end 2007 compared with some 25 mmcfge/d after WEC was purchased, an increase of
over 20%. Further growth is planned for 2008.
The onshore high risk/high upside Brown1 exploration well ('Thunder Stud': NRI
10.7%) was drilled to 17,900 feet and production casing was run. The testing
programme on this potentially large structure had to be postponed until
mid-October due to exceptionally adverse weather and consequent equipment
delays. Partners are keen to drill a further well quickly.
Offshore, a farmout well on High Island 52 (ORRI 2.85%) has been successful and
is being brought onto production. The near-term abandonment costs of the
non-producing wells and of the platforms there have passed to the farminee.
Upgrades of the pipelines and facilities in late 2006 have led to the expected
increase in third party throughput income from the Mustang Island and Matagordo
area. Meanwhile, a programme of abandonment work is now reaching its end on both
the non-producing High Island 68/83 wells and platforms, as well as in wells in
the Mustang Island area.
Drilling has not only resulted in an overall upward change and re-categorisation
of reserves, but has validated a number of drilling targets for 2008.
Two acquisitions have recently been made in the USA. In June 2007, Sterling
acquired an option on a 20% equity stake in Viking International Petroleum (VIP)
in the form of a 2-year $3.5 million convertible note. VIP is a private company
that generates drilling prospects located primarily in South Texas, one of
Sterling's core areas but where it lacked near-term activity. Sterling has a
pre-emptive right over its drilling interests and the first two wells in August
and September have been successful adding net reserves in excess of 1 bcfge.
In addition to gaining access to over 3,500 acres in South Texas, a region that
has become very competitive for mineral rights in recent years, VIP also has
over 2,700 square miles of 3-D seismic. The acquisition also provides a
portfolio of over 30 prospects with an exposure to net un-risked reserves of
nearly 60 bcfge. It is expected that many of these prospects will be drilled
over the next 18 months.
In July 2007, Sterling took its NRI in the Windham Field to 66% located in
Midland County, TX for c$3.6 million and became operator. It intends to quicken
the pace of development of the field. Prior to this date, it had a 40% NRI in
the field which has 13 producing wells, four PUD drilling locations and three
probable locations. Total net 2P reserves are 5.1 bcfge and 0.4 mmcfge/d in
production.
Sterling now plans to have participated in 20 additional USA wells in the second
half and complete a facility upgrade in the Langlie Jal Field located in the
Permian Basin. The operated Merge prospect (Sterling NRI 31% after farmout) is
currently being drilled south of the Rayne Field located in South Louisiana. In
total, these wells have the potential of adding materially to production and
reserves.
African Operations
Mauritania
Phase 2B development expected to raise production in 2008
Chinguetti field oil production in the first quarter averaged 18,300 bopd and
15,400 bopd in the second quarter of 2007. The Chinguetti-18 development well,
drilled and brought onstream in March 2007, has contributed at gross rates up to
6,000 bopd. A number of non-reservoir related factors have contributed to
production rates being less than the field potential over the past six months.
These include planned shut-downs for subsea and FPSO maintenance work, a failed
water shut-off plug in well C-14, and restricted gas lift capability in several
wells. Resolution of these issues would improve current field rates of
13,000-14,000 bopd markedly. The Group's interest in production in the first
half of 2007 through its Funding Agreement and its royalty stream averaged over
1,700 bopd.
Recent interpretation suggests that the current wells are only accessing about
half of the producible reserves from the field. Phase 2B of the Chinguetti
development is expected to commence in early 2008 with 2-3 new development wells
and 2-3 workovers using the Atwood Hunter rig. The recently acquired high
resolution 3D and 4D seismic data is being processed to assist with the
selection of optimal well locations and a full development programme update is
expected from the Operator shortly. The operator has forecast that field
production will at least double as a result.
During the period, the Operator published estimated ultimate recoverable
reserves of 62 mmbbl from the field compared to the 50 mmbbl carried by Sterling
following the independent RISC report earlier in January.
With oil prices currently in the high $70's/barrel, Chinguetti still provides
significant revenue for the Group with total income from the 2 cargoes in the
first half of 2007 of $20.3m including overriding royalties on production and
before hedge costs. Two further cargo lifts are expected in the second half of
2007. The field partners have recently agreed to jointly market crude oil. As a
result of the new arrangements, Sterling's crude oil entitlement will be sold in
smaller quantities, but more regularly, thereby helping to provide a smoother
cash flow profile.
Work towards a development plan for Tiof continues to be progressed, with a 3D
seismic survey conducted in 2007. Sterling will benefit from any development
through its royalty income and development bonus, as well as potential
operational synergies through sharing Chinguetti facilities and costs. Tiof
would most likely be developed through a tension leg platform tied back through
the Chinguetti FPSO facilities. Reserves for the first phase are estimated in
the range 40-60 million bbl.
Gabon
Preparing for drilling in Q4 2007 and Q1 2008
Rigs have been procured for the drilling of two exploration wells which are
planned in the near term. The Admiral prospect in Themis Marin will be drilled
in Q4 2007 with the THAM-1 well targeting 5-20 million bbls gross. About
two-thirds of Sterling's interest in this well is carried. Additionally, the
Charlie prospect in Iris Marin, where there is no carry, is expected to be
drilled in H1 2008 targeting 15-40 million bbls gross.
Both wells will target prospects in the Gamba Sandstone Formation which is the
producing reservoir in the nearby Gamba, Ivinga, Etame and Ebouri Felds.
Success is likely to upgrade other prospects in Sterling's acreage.
Sterling operates three shallow water permits in southern Gabon; Iris Marin
(38.57% interest), Themis Marin (20.57% interest) and the Ibekelia TEA
(Technical Evaluation Agreement) (40% interest). An encouraging view of the
prospectivity prompted Sterling to pre-empt the sale by PetroSA of its non-core
interests in Iris and Themis. The completion of this transaction is expected in
Q4 2007 and it will increase Sterling's equity in Iris Marin to 50% and in
Themis Marin to 28.51%.
In Iris Marin and the neighbouring Ibekelia TEA a 7,100 line km aeromagnetic
survey was completed in H1 2007, and the data is being reviewed in conjunction
with the results of recent 3D seismic reprocessing projects. Sterling and its
partners intend to convert Ibekelia into a full Production Sharing Agreement by
end 2007, subject to Government approval.
Madagascar
Large prospects identified
Sterling has a 30% interest in the Ambilobe and Ampasindava Production Sharing
Contracts (PSC's) covering two large blocks in northwestern offshore Madagascar.
Following a farmin that carries Sterling for a significant exploration work
programme, ExxonMobil became a 70% equity interest holder and co-venturer in
both blocks. Sterling currently estimates that the carry will cover it for all
costs up to and including a portion of any well costs.
Sterling is operator of the larger Ambilobe Block while ExxonMobil operates the
Ampasindava Block.
In the first half of 2007, exploration activity has continued apace with the
interpretation of more that 8,000 km of new and reprocessed 2D seismic data. The
addition of this modern, regional seismic dataset has significantly improved the
co-venturers' understanding of the exploration potential of both blocks. Initial
results show that the salt basin, offshore northwest Madagascar, is appreciably
larger than had been previously considered and contains a number of very large
structures. In the Ampasindava Block, one such structure has been identified and
is a particular target of the operator's ongoing evaluation. The evaluation work
programme continues to mature the exploration portfolio towards key decisions
regarding additional data acquisition and possible early drilling.
AGC joint development area
Carried exploration/appraisal well planned on Dome Flore
The Dome Flore concession lies within the AGC, a joint exploration zone between
Senegal and Guinea Bissau. Sterling holds a 30% non-operated interest. Heavy
oil feasibility studies suggested the need for further appraisal of Dome Flore
to assess the economic feasibility of this heavy oil deposit which, together
with the adjacent Dome Gea, contains an estimated 800+ million bbls of oil in
place. A drilling site survey has been completed for a well for which
Sterling's costs are carried. The operator is now seeking a drilling rig to
drill. The well has appraisal objectives for the heavy oil accumulation along
with deeper, light oil exploration objectives.
Guinea-Bissau
Evaluating well results
Sterling holds a 5% working interest in the Sinapa license and elected during
the first half of 2007 to acquire a 5% interest in the neighbouring Esperanca
licence. Drilling on the Espinafre and Eirozes prospects in the first half of
2007 was unsuccessful and the joint venture is currently evaluating the well
results with a view to making a decision in 4Q 2007 as to any forward work
programme.
Cameroon
Border dispute resolution in progress
This 100% licence remains suspended due to a border dispute: Cameroon and
Equatorial Guinea are working together to resolve this. Recent industry
drilling activity in both countries has seen several significant gas
discoveries.
Kurdistan
Continued progress towards PSC
In February 2006, Sterling signed a Memorandum of Understanding ('MOU') with the
Kurdistan Regional Government of Iraq ('KRG'). This provided exclusive rights
for the company to carry out geological studies and negotiate a full Production
Sharing Contract (PSC) for an exploration block in Kurdistan, a largely
unexplored area of high potential.
The KRG has made good progress in putting in place the required energy
legislation and in August this year the KRG Parliament passed a new petroleum
law which will provide the legal framework for future PSC's. Sterling continues
to work with the KRG to convert the MOU into a PSC.
FINANCIAL REPORT
Finance Review
Profit for the first half of 2007 was $1.4 million (H1 2006: $8.2 million),
recovering from the $38.6 million loss (including the Chinguetti write-down)
reported for the full year 2006. EBITDA was $27.1 million of which WEC
contributed $10.1 million for the period since its purchase at the end of March
2007 for $147 million and net liabilities of $56 million. Sterling has also
today conditionally refinanced all of its bank debt in new 6 year facilities.
Key Indicators
H1 2007 H1 2006 Year 2006
Production (boepd, entitlement basis) 4,910 4,671 4,400
Realised Mauritania Oil Price $61.93 $63.91 $61.01
Realised US Gas Price (per mcf) $7.39 $7.35 $6.73
Operating performance
Production was 4,910 boepd for the first half 2007 up 5% from the 4,671 in H1
2006 and up 19% from the second half of 2006. The USA accounted for 65% of
production in H1 2007. The contribution from the Chinguetti field in Mauritania
to first half production was 1,719 bopd further declining from the H1 2006 level
of 3,363 bopd despite first contributions from the Chinguetti-18 well.
Turnover for the period of $45.1 million, net of hedge settlements of $2.9
million, was only slightly lower than the $45.3 million (net of $1.1 million of
hedges) in H1 2006. The proportion arising from Chinguetti fell markedly from
72% in H1 2006 to 38% in H1 2007 and lower in the second half.
Costs of sales increased. Chinguetti operating expenses are largely fixed in
the short term and so increased to $13.85/bbl (H1 2006: $6.02/bbl). Depreciation
there increased to $32.42/bbl (H1 2006: $28.62/bbl) following the write down in
reserves and book values at the 2006 year end.
US operating costs were lower at $1.38/mcf (H1 2006: $1.60/mcf) reflecting the
lower cost base of onshore production, but depreciation costs increased to $3.25
/mcf (H1 2006: $1.60/mcf), partly due to the requirement under IFRS accounting
rules applying to the Whittier acquisition to 'uplift' the purchase price for
non-cash deferred taxation. For WEC the depreciation charge was $4.20/mcfge.
Administrative expenses, net of third party recharges for operating licences and
costs capitalised, increased to $6.6 million (H1 2006: $4.8 million), mainly
reflecting the scaling-up of the UK exploration and commercial teams and the
addition of WEC's Houston office.
Earnings before interest, tax, depreciation and amortisation (EBITDA) totalled
$27.1 million (H1 2006: $27.6 million, year 2006: $59.4 million). Of this, $48/
bbl was from the Mauritanian operations (H1 2006: $58/bbl) and the US operations
were $36/boe (H1 2006: $35/boe).
Finance items
Net finance expense for the first half of 2007 was $2.9 million (H1 2006: $0.2
million), reflecting higher levels of bank debt incurred for and with the WEC
deal. At mid-year, Sterling had borrowed $87 million from Natixis under its
short-term acquisition facility due by the end of 2007 and a further $56 million
under a facility solely within WEC. Net debt stood at $110.6 million at 30 June
2007 (30 June 2006: net cash $49.0 million; 31 December 2006: net cash $68.5
million). Interest currently accrues on bank debt at an average rate of 8.2%.
At 25 September 2007, unrestricted cash balances were $21 million, undrawn
facilities were $14 million and total bank debt was $149 million after financing
the second half USA asset purchases.
Also today Sterling has conditionally agreed to refinance all of its bank debt
in new facilities lead by Natixis. It is intended that a new $250 million
facility will be syndicated with other banks and a subordinated $15 million
facility will be with Natixis. It is expected that at drawdown the total
borrowing base will be around $160-5 million. With 6 year terms, there will be a
borrowing base review every 6 months, with the first one effective mid January
2008.
Cash flow
Net cash flow from operating activities (after working capital) in the first
half of 2007 totalled $8.4 million excluding $11.1 million from the June 2007
Chinguetti lifting which was not paid until mid July (H1 2006: $19.9 million).
New marketing arrangements for the Chinguetti field will give Sterling more
regular realisations of its oil entitlements going forward creating a smoother
cash flow profile. The Whittier assets, included for only the second quarter,
contributed $5.7 million to H1 2007.
Cash investments in oil and gas assets in the first half of 2007, excluding the
costs directly related to the WEC acquisition, totalled $33.3 million (H1 2006:
$36.3 million). Of this, $10.3 million was invested in Mauritania in respect of
the Chinguetti-18 well and long lead items for the 2008 Phase 2B drilling
programme and $21.1 million was invested in the USA, including $8.5 million in
respect of the WEC assets.
WEC acquisition
The WEC acquisition was completed at the end of March 2007 and has been
accounted for within these financial statements with effect from that date. As
set out in note 7, the acquisition was completed at a cost of $146.8 million of
cash which was sourced from $49.2 million from a share placing, $85.0 million
from a one year bank bridge facility and the balance from internal cash
balances. The WEC Balance Sheet at the acquisition date contained $56 million of
net liabilities, before deferred tax.
An initial exercise has been performed to attribute fair values to the assets
and liabilities acquired which will be reviewed and finalised at the 2007
year-end. As part of the acquisition accounting, oil and gas assets are
required to be included at their fair value and reflect deferred taxation
liabilities arising. This additional tax cost added $0.75/mcfge to the WEC
depreciation charge in respect of the 2P reserves acquired.
The contribution from the WEC assets in the second quarter to first half pre-tax
profits was $1.2 million on revenues of $14.1 million, whilst it added $10.3
million to operating cash flow before working capital.
Oil and gas prices hedge positions
Settlements of hedges in the period reduced turnover by $2.9 million but were
almost offset by the $1.8 million release from provisions.
Hedge positions held at 30 June 2007 can be summarised as follows:
H2 2007 2008 2009
Brent Oil Price
Volume (bbl) 600,000 Nil Nil
Current price hedge (per bbl)
Floor $50.00 - -
WTI Oil Price
Volume (bbl) 99,000 192,000 108,000
Current price hedge (per bbl)
- Collar Floors $47.50-$60.00 $60.00 -
- Collar Ceilings $68.60-$69.25 $72.30-$83.00 -
- Swaps $73.00 $70.00-71.35 $69.90
Henry Hub Gas Price
Volume (mcf) 990,000 1,100,000 420,000
Current price hedge (per mcf)
- Collar Floors $6.00-$9.00 $6.50-$9.00 $7.00
- Collar Ceilings $7.95-$16.25 $9.75-$16.25 $8.65
- Swaps $6.97-$10.98 $8.65-$10.98 $9.22
No further hedges have been entered into during the period up to 26th September
2007. The Board regularly reviews the Group's exposure to oil and gas price
movements and currently intends to enter into further oil and gas hedges for the
next 2-3 years.
Disclaimer
This statement 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 Group believes the expectation
reflected herein to be reasonable in light of the information available to it at
this time, the actual outcome may be materially different owing to factors
either beyond the Group's control or otherwise within the Group's control but
where, for example, the Group decides on a change of plan or strategy.
Accordingly, no reliance may be placed on the figures contained in such
forward-looking statements.
Definitions
2P - proven and probable
bbls - barrels of oil
bcf - billion cubic feet of gas
bcfge - billions of cubic feet gas equivalent
boe - barrels of oil equivalent
boepd - barrels of oil equivalent per day
bopd - barrels of oil per day
mcf - thousand cubic feet of gas
mcfge/d - thousand cubic feet of gas equivalent per day
mmbbl - millions of barrels
mmcfg/d - million cubic feet of gas per day
mmcfge/d - millions of cubic feet of gas equivalent per day
NRI - net revenue interest
ORRI - overriding royalty interest
WI - working interest
Sterling Energy plc - Consolidated income statement
For the six months to 30 June 2007
Six months to 30 Six months to 30 Year ended 31
June 2007 June 2006 December 2006
$000's $000's $000's
(unaudited) (unaudited)
Revenue 45,127 45,329 81,003
Cost of sales (33,605) (25,888) (54,419)
__________ __________ __________
Gross profit 11,522 19,441 26,584
Administrative expenses (6,607) (4,797) (12,027)
Impairment provision - (1,000) (60,033)
Pre-licence exploration costs (1,621) (10) (1,368)
__________ __________ __________
Operating profit/(loss) 3,294 13,634 (46,844)
Interest revenue and finance gains 1,754 1,384 3,082
Gain/(Loss) on hedging instruments 1,835 (2,894) 303
Finance costs (4,610) (1,616) (3,201)
__________ __________ __________
Profit/(Loss) before tax 2,273 10,508 (46,660)
Tax (Note 8) (824) (2,282) 6,101
__________ __________ __________
Profit/(Loss) for financial year 1,449 8,226 (40,559)
Attributable to minority interest - - 1,981
__________ __________ __________
Profit/(loss) attributable to equity holders
of parent company 1,449 8,226 (38,578)
__________ __________ __________
Earnings/(loss) per share: (Note 9)
Basic 0.09USc 0.59USc (2.75)USc
__________ __________ __________
Diluted 0.09USc 0.57USc (2.75)USc
__________ __________ __________
Sterling Energy plc - Consolidated balance sheet
As at 30 June As at 30 June As at 31 December
2007 2006 2006
$000's $000's $000's
(unaudited) (unaudited)
Non-current assets
Intangible royalty assets 17,199 40,210 18,000
Intangible exploration and evaluation assets 103,040 27,007 21,384
Property, plant and equipment 349,214 193,584 156,800
Investments 4,456 4,396 5,922
__________ __________ __________
473,909 265,197 202,106
__________ __________ __________
Current assets
Inventories 1,116 2,304 3,713
Trade and other receivables 49,149 23,703 13,863
Current tax repayable 833 - 1,248
Cash and cash equivalents 31,075 67,816 91,759
__________ __________ __________
82,173 93,823 110,583
__________ __________ __________
Total assets 556,082 359,020 312,689
__________ __________ __________
Current liabilities
Trade and other payables (47,451) (24,386) (32,182)
Derivative financial instruments (2,959) (7,847) (4,650)
Current tax liabilities (295) (3,292) (299)
Bank loans (85,667) - -
__________ __________ __________
(136,372) (35,525) (37,131)
__________ __________ __________
Non-current liabilities
Long-term debt (56,000) (18,840) (23,214)
Deferred tax liabilities (66,360) (10,680) (6,128)
Long-term provisions (23,149) (25,197) (22,593)
__________ __________ __________
(145,509) (54,717) (51,935)
__________ __________ __________
Total liabilities (281,881) (90,242) (89,066)
__________ __________ __________
Net assets 274,201 268,778 223,623
__________ __________ __________
Equity
Share capital 30,109 26,899 26,919
Share premium account 319,806 273,560 273,785
Share option reserve 7,268 5,468 6,451
Investment revaluation reserve 2,145 3,113 4,739
Currency translation reserve 1,388 (1,084) (307)
Retained earnings (86,515) (41,159) (87,964)
__________ __________ __________
Equity attributable to equity holders
of the parent 274,201 266,797 223,623
Minority interest - 1,981 -
__________ __________ __________
Total Equity 274,201 268,778 223,623
__________ __________ __________
Sterling Energy plc - Consolidated statement of recognised income and expense
For the six months ended 30 June 2007
Six months to 30 Six months to 30 Year ended 31
June 2007 June 2006 December 2006
$000's (unaudited) $000's $000's
(unaudited)
Profit/(loss) for the financial
period 1,449 8,226 (38,578)
Movement on share option
reserve 817 915 1,898
Currency translation
adjustments 1,695 1,587 2,363
Movement on value of quoted
company investment (2,594) (3,913) (2,287)
__________ __________ __________
Recognised income and expense
for the period 1,367 6,815 (36,604)
_________ __________ __________
Statement of changes in equity
For the six months ended 30 June 2007
Six months to 30 Six months to 30 Year ended 31
June 2007 June 2006 December 2006
$000's $000's $000's
(unaudited) (unaudited)
Balance at beginning of period 223,623 261,963 261,963
Profit/(Loss) for the financial period 1,449 8,226 (38,578)
Currency translation adjustments 1,695 1,587 2,363
Investment revaluation reserve (2,594) (3,913) (2,287)
Minority interest - - (1,981)
Shares issued (net of expenses) 49,211 - 245
Share Option Reserve 817 915 1,898
__________ __________ __________
Balance at end of period 274,201 268,778 223,623
__________ __________ __________
Consolidated cash flow statement (see note 10)
For the six months ended 30 June 2007
Six months to Six months to Year ended 31
30 June 2007 30 June 2006 December 2006
$000's $000's $000's
(unaudited) (unaudited)
Operating activities
Cash generated from operations 7,986 19,928 63,017
Taxation paid 416 - (767)
__________ __________ __________
Net cash flow from operating activities 8,402 19,928 62,250
Investing activities
Capital expenditure (33,304) (36,263) (51,191)
Corporate acquisitions (145,368) - -
Interest received 1,754 1,430 3,082
__________ __________ __________
Net cash used in investing activities (176,918) (34,833) (48,109)
Financing activities
Net proceeds from issue of ordinary shares 49,211 - 245
Repayments of loan facilities (23,214) - (4,111)
Draw-downs on loan facilities 85,667 - -
Interest paid (3,973) (999) (1,648)
__________ __________ __________
Net cash flow from/(used in) financing activities 107,691 (999) (5,514)
__________ __________ __________
Net (decrease)/increase in cash and cash equivalents (60,825) (15,904) 8,627
Cash and cash equivalents at beginning of year 91,759 82,033 82,033
Effect of foreign exchange rate changes 141 1,687 1,099
__________ __________ __________
Cash and cash equivalents at end of year 31,075 67,816 91,759
__________ __________ __________
Sterling Energy plc - Notes to the interim financial information
For the six months to 30 June 2007
1. The interim financial information in this report is prepared on the basis
of the accounting policies set out in the 2006 Annual Report and Accounts
which are consistent with International Financial Reporting Standards (IFRS)
adopted for use by the European Union.
2. No interim dividend is proposed to be paid for the six months to
30 June 2007.
3. This statement does not comprise statutory accounts as defined in Section
240 of the Companies Act 1985. Statutory accounts for the year ended
31 December 2006, on which the auditors gave an unqualified report,
have been filed with the Registrar of Companies.
4. The interim financial information as at and for the six months ended
30 June 2007 have been neither audited nor reviewed by Sterling Energy plc's
auditors.
5. The Directors of the Company approved the financial information included
in this interim result document on 25 September 2007.
6. Segmental reporting
The group operates in one business segment; the exploration for and production
of oil and gas. The group currently has interests in two geographical segments;
North America and Africa. Segment information about the operating profit of the
business is presented below.
North America Africa Total
H1 2007 H1 2006 H1 2007 H1 2006 H1 2007 H1 2006
$'000 $'000 $'000 $'000 $'000 $'000
Revenue 27,685 12,514 17,442 32,815 45,127 45,329
Cost of sales (16,755) (5,279) (16,850) (20,609) (33,605) (25,888)
Gross profit 10,930 7,235 592 12,206 11,522 19,441
Impairment provision - - - (1,000) - (1,000)
Pre-licence exploration costs - - (1,621) (10) (1,621) (10)
Segment result 10,930 7,235 (1,029) 11,196 9,901 18,431
_______ _______ _______ _______
Unallocated corporate expenses (6,607) (4,797)
Operating Profit 3,294 13,634
_______ _______
Sterling Energy plc - Notes to the interim financial information
For the six months to 30 June 2007
7. Acquisition of subsidiary
On 29 March 2007, the group acquired 100 per cent of the issued share capital of
Whittier Energy Corporation ('WEC') for cash consideration of $147 million. WEC
is the parent company of a group of companies involved in onshore US Gulf Coast
exploration and production. This transaction has been accounted for using the
purchase method of accounting. WEC was subsequently renamed Sterling Energy USA
Inc. during the period.
Book value Fair value
$'000 $'000
Net assets acquired :
Property, plant and equipment 119,316 191,210
Intangible exploration and evaluation assets 31,194 72,981
Goodwill 1,485 -
Trade and other receivables 15,723 15,268
Cash and cash equivalents 1,392 1,392
Trade and other payables (21,634) (21,634)
Bank loans (51,325) (51,325)
Deferred tax liabilities (24,139) (60,421)
Decommissioning liabilities (711) (711)
71,301 146,760
__________ _________
Satisfied by:
Cash 145,432
Directly attributable costs 1,328
146,760
_______
Net cash outflow arising on acquisition:
Cash consideration (146,760)
Cash and cash equivalents acquired 1,392
(145,368)
_______
WEC contributed $14.1 million of revenue, $3.3 million of gross profit, and $1.2
million to the Group's profit before tax for the period between the effective
date of acquisition and 30 June 2007. WEC contributed $10.3 million to operating
cash flow before working capital for the same period.
A deferred taxation liability is estimated at $60.4 million and mainly arises as
a result of the requirements under IFRS 3 ('Business combinations'). The fair
value of non-current assets acquired reflects the resulting deferred taxation
liabilities...
Sterling Energy plc - Notes to the interim financial information
For the six months to 30 June 2007
8. Taxation
The Group tax charge comprises:
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 December 2006
$000's $000's $000's
(unaudited) (unaudited
Current tax charge/(credit) - 1,265 (1,255)
Deferred tax-origination and reversal of
timing differences 824 1,017 (4,846)
__________ __________ __________
Total charge/(credit) 824 2,282 (6,101)
__________ __________ __________
The difference between the current tax charge and the amount calculated by applying the
applicable standard rate of tax is as follows:
Group profit/(loss) on ordinary activities
before tax 2,273 10,508 (46,660)
__________ __________ __________
Tax on Group profit/(loss) on ordinary
activities at standard US corporation tax
rate of 34% 773 3,573 (15,864)
Effects of:
Expenses not deductible for tax purposes 94 264 (1,654)
Capital allowances (in excess of)/exceeded
by depreciation (1,937) (2,367) 15,840
Other temporary differences 1,313 (46) 395
Difference in tax rates 131 (159) 1,364
Adjustment for tax losses (374) - 47
Adjustment in respect of prior years - - (1,383)
Deferred tax charge/(credit) 824 1,017 (4,846)
__________ __________ __________
Tax charge/(credit) for the period 824 2,282 (6,101)
__________ __________ __________
During 2007 and 2006 the group generated its results primarily in the US.
Therefore the tax rate in the above reconciliation for 2007 is the standard rate
for US corporation tax.
Sterling Energy plc - Notes to the interim financial information
For the six months to 30 June 2007
9. Earnings per share
Basic earnings per share is based on the profit on ordinary activities after
taxation of $1,449,000 (first half 2006: profit for the period, $8,226,000; year
2006: loss for the year $38,578,000) and the weighted average number of
1,543,761,608 ordinary shares of 1p each in issue during the period (first half
2006: 1,401,950,558; year 2006: 1,402,408,092). For the six months to 30 June
2007, the fully diluted earnings per share was 0.09USc per share. This is
computed based on 1,572,411,822 ordinary shares, being the total used for the
computation of the basic earnings per share as adjusted in assuming the exercise
of 28,650,214 of the 77,065,000 options granted or approved for grant as at the
end of June 2007.
10. Cash flow
a. Cash flows from operating activities
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 December 2006
$000's $000's $000's
(unaudited) (unaudited)
Operating activities
Operating profit/(loss) 3,294 13,634 (46,844)
Depletion and amortisation 21,353 12,126 42,978
Impairment expense - 1,000 60,033
Pre-licence exploration costs 1,621 10 1,368
Share-based payment provision 817 796 1,898
__________ __________ __________
Operating cash flow prior to working capital 27,085 27,566 59,433
Decrease/(Increase) in inventories 2,597 (2,304) (3,713)
(Increase) in trade and other receivables (18,315) (5,870) (3,454)
(Decrease)/increase in trade and other payables (3,381) 536 10,751
__________ __________ __________
Net cash provided by operating activities 7,986 19,928 63,017
__________ __________ __________
b. Cash and cash equivalents
At 1 January Cash flow Exchange At 30 June 2007
2007 $000's Movement $000's
$000's $000's
Cash at bank and in hand,
unrestricted 86,723 (60,682) 141 26,182
Cash held on a restricted
account 5,036 (143) - 4,893
__________ __________ __________ __________
Cash & cash equivalents 91,759 (60,825) 141 31,075
__________ __________ __________ __________
Sterling Energy plc - Notes to the interim financial information
For the six months to 30 June 2007
11. Share capital
At 30 June At 31 December
2007 2006
$'000 $'000
Authorised:
2,400,000,000 (2006: 2,400,000,000) ordinary shares of 1p each 46,078 46,078
Called up, allotted and fully paid:
1,565,900,558 ordinary shares of 1p each (year ended 2006 - 1,402,950,558
ordinary shares of 1p each) 30,109 26,919
__________ __________
Movements during the period consisted of 162,950,000 new ordinary shares which
were issued at a price of 16p in connection with the acquisition of WEC (see
note 7).
12. Bank loan facilities
Six months to Year ended 31
30 June 2007 December 2006
$'000 $'000
Bank loan facilities - long-term 56,000 23,214
Bank loan facilities - short-term 85,667 -
141,667 23,214
__________ __________
The acquisition of WEC (note 7) was partially funded by a bank loan facility
agreed on 19 January 2007 of $100,000,000 of which $85,667,000 had been drawn at
30 June 2007. This facility is secured. At the period end the facility, which
requires repayment by 28 December 2007, is accordingly classified as short-term.
In addition, a further $56,000,000 of bank debt drawn by WEC was also
outstanding at 30 June 2007. This facility is secured by a charge over all of
the WEC assets, including the property, plant and equipment and is repayable
after more than one year.
On 25 September 2007 conditional agreements were reached to refinance all bank
debt then outstanding under new six year facilities. There are a number of
conditions to be met before drawing can occur. There will be twice yearly
borrowing base reviews, the first being effective on 15 January 2008.
The loan held by Sterling Energy Inc. of $23,214,000 at the end of 31 December
2006 was repaid in the first half of 2007 and the facility was subsequently
cancelled.
13. Further copies of this interim statement are available from the Company
Secretary, Sterling Energy plc, 5 Chancery Lane, Cliffords Inn, London,
WC2A 1LG, United Kingdom. Telephone +44 (0) 207 405 4133,
Fax +44 (0) 207 440 9059, info@sterlingenergyuk.com
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