Annual results for the year ended 31 December 2018
25 March 2019
STERLING ENERGY PLC
ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018
Sterling Energy plc is today issuing its preliminary results for the year ended 31 December 2018.
OVERVIEW
Sterling Energy plc ('Sterling' or the 'Company'), together with its subsidiary undertakings (the 'Group'), is an upstream oil and gas company listed on the AIM market of the London Stock Exchange. The Company is an experienced operator of international exploration and production licences, with a primary geographic focus on emerging markets including, Africa and the Middle East, although the Board would consider other regions for material opportunities. The Group has a high potential exploration asset in Somaliland and an active strategy to deliver shareholder value through disciplined, exploration and production projects; leveraging the Company's experience, with an emphasis on securing near term cash flow generative opportunities.
2018 SUMMARY
Operations
· Throughout 2018: Odewayne block, Somaliland - Sterling continued to support the Operator in progressing the technical understanding of the block.
· January 2018: Chinguetti, Mauritania - cessation of production ('CoP') and negotiated termination of the Funding Agreement ('Deed of Termination').
Corporate
· Continued merger and acquisition ('M&A') mandate for transformational growth (asset and corporate options).
· June 2018: Board and Management appointment of David Marshall as CEO.
· October 2018: Appointment of GMP FirstEnergy as the Company's co-broker.
Financial
· Cash resources net to the Group at 31 December 2018 of $46.3 million (2017: $81.4 million).
· The Group remains debt free and fully funded for all commitments.
· Adjusted EBITDAX1: loss for the Group of $1.5 million (2017: $5.9 million loss).
· Ongoing focus on capital discipline, cash general and administrative overheads ('G&A') expenses reduced by 25% to $3.0 million and is forecast to be ca. 15% lower in 2019.
· Proactive focus on treasury management, with interest received totaling $1.0 million (2017: $1.1 million).
Post year end
· Odewayne block, Somaliland; Operating Committee Meeting ('OCM') held early March where the work program for 2019 was finalised by the Joint Venture ('JV') partners, including the reprocessing of 1,000km of 2D seismic to Pre-Stack Time Migration1 ('PSTM').
1defined within the definitions and glossary of terms
For further information contact:
Sterling Energy plc +44 (0) 20 7405 4133
David Marshall, Chief Executive Officer
Michael Kroupeev, Chairman
Peel Hunt LLP +44 (0) 20 7418 8900
Richard Crichton
James Bavister
www.sterlingenergyplc.com Ticker Symbol: SEY
This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.
CHAIRMAN'S STATEMENT
The market conditions remained unstable throughout 2018 with the oil price continuing to be volatile; Brent peaking at $86/bbl in October and sliding down to nearer $50/bbl three months later. Uncertainty is high and material deals require more time to evaluate and execute.
Our team is working hard screening a number of opportunities. Expectation is that from these efforts will materialise a value creating deal in the near term.
The Somaliland acreage remains very attractive, with costs carried by our partner during the current phase of the licence through to drilling in the subsequent period. The Operator continues the processing and interpretation of the data gathered throughout the Third Exploration Period and we are engaging closely with the process and the results. We see this as an exciting and potentially material exploration opportunity and look forward to the possibility of drilling over the next few years.
Financial
In 2018, business costs were further reduced by continued overhead initiatives and a focus on treasury management. The Group had cash resources of $46.3 million at the end of 2018 and we remain free of debt with our work programme for 2019 fully funded.
Board
In June 2018 the Company announced the appointment of David Marshall as the Chief Executive Officer and Director of the Company. David has 35 years' experience in oil and gas production and development specialising in technical solutions for accessing production from stranded assets.
Outlook for 2019 and beyond
The outlook for 2019 is exciting. Post Chinguetti the Company is pursuing opportunities in our focus areas, utilising our technical expertise. Should market conditions worsen, we will preserve our capabilities, strengths and cash position to weather any storm.
I would like to thank all our stakeholders for their continuing support and all of our management and staff for their diligent efforts during 2018.
Michael Kroupeev - Chairman
CEO'S STATEMENT
Market Landscape
Commodity prices in 2018 saw an oil price between the $50-86 per barrel range. Commodity prices were very volatile, particularly in Q4 2018 when prices averaged $68 per barrel. The beginning of 2019 has already seen a steady rise in crude prices, with crude prices up ca. 23% from January 1st to mid-March.
Majors are stepping back from large scale projects, investing more capital into projects with shorter payback timeframes. There is a clear appetite in the market for buying and selling existing production, however we have seen early signs that exploration projects are coming into focus once again.
Markets and the news cycle have been dominated by Britain's imminent withdrawal from the European Union in March 2019. Though the Company sees no direct impact from BREXIT, equity markets are likely to be volatile during the period preceding BREXIT and possibly thereafter. More recently Russia continues to cut production and Venezuelan and Iranian exports fall due to the impact of sanctions.
The Company is well financed and is positioned to take advantage of acquisition opportunities during these volatile market conditions.
Operations
During 2018 work on the Odewayne block in Somaliland was focused on undertaking a highly focused and rigorous processing effort, with the primary technical objective of improving the deeper subsurface image; as a part of this, Sterling finalised the processing to PSTM of three test 2D seismic lines and shared the results with the JV. In 2019 we will continue to support the Operator and look forward to the results from the reprocessing. The costs associated with current period (Third Period) and the Fourth Period are fully carried by Genel Energy, hence the minimal capital investment shown within the accounts.
In January 2018, Sterling completed the termination of its Funding Agreement for the Chinguetti oil field in Mauritania, crystallising the liability exposure. The completion of the termination process was the final step in the reorganisation of the Group and now allows us to concentrate on our corporate strategy of securing a material M&A transaction.
Activity has doubled on opportunity and asset screening and we are gaining deal traction due to the renewed focus and simplicity of the Group as mentioned above. Many smaller companies with viable developments but low cash reserves are looking for merger opportunities, giving them access to cash that is currently not available from capital markets.
Corporate
Sterling retains a strong position on the AIM listed oil and gas sector with a strong cash platform of $46.3 million and no debt or other liabilities.
The Company has continued to reduce G&A and focus on robust treasury management, in line with the Board mandate for cash preservation to maximise our ability to deploy capital into existing and new assets. In 2018 cash G&A expenses reduced by 25% in comparison to 2017. As we forecast into 2019 the Company hopes to achieve further G&A savings of ca. 15% whilst increasing interest received by ca. 15%.
In 2018 the Company appointed GMP FirstEnergy as joint corporate broker, and legal M&A specialists Pinsent Masons, as their expertise in the Oil and Gas sector will benefit the continued drive to a material transaction.
We have a clear strategy and can move quickly and decisively for the right opportunity, leveraging our cash balance and technical capabilities of the Sterling team to good effect.
David Marshall - Chief Executive Officer
OPERATIONS REVIEW
Since late 2015, the Company implemented a strategic mandate of exiting non-core exploration portfolio assets, and reducing outstanding liabilities, to provide a simpler and rejuvenated platform for M&A led growth. The Group's remaining African exploration focused Odewayne block provides fully carried exposure to a frontier basin that has the potential to deliver material hydrocarbon reserves.
SOMALILAND
Somaliland offers one of the last opportunities to target an undrilled onshore Mesozoic rift basin in Africa. The Odewayne block, with access to Berbera deepwater port less than a 100km to the north, is ideally located to explore this frontier basin. A 2D geophysical survey acquired in 2017, along with potential field data and legacy geological field studies, help corroborate the presence of a sedimentary basin with further evidence for a working hydrocarbon system.
Odewayne (W.I. 34%) Exploration block
Overview
This large and unexplored frontier acreage position comprises an area of 22,840km2, the equivalent of ca. 100 UK North Sea blocks. Exploration activity prior to the 2017 regional 2D seismic acquisition program has been limited to the acquisition of airborne gravity and magnetic data and surface fieldwork studies, with no wells drilled on block.
The Odewayne production sharing agreement ('PSA') was awarded in 2005. It is in the Third Period, with a minimum work obligation of 500km of 2D seismic. The Third Period has been extended, through the 6th deed of amendment and its minimum work obligation was met in 2017 when the Somali Government (Ministry of Energy and Minerals) contracted BGP (Geophysical contractor) to undertake a 1,000km (full fold, 1,076km surface) 10km by 10km, 2D seismic campaign. The minimum work obligation during the optional Fourth Period of the PSA (also extended by 2 years) is for 1,000km of 2D seismic and one exploration well.
The Company's wholly owned subsidiary, Sterling Energy (East Africa) Limited ('SE(EA)L'), holds a 34% working interest in the PSA. SE(EA)L originally acquired a 10% position from Petrosoma Limited ('Petrosoma') in November 2013 and an additional 30% from Jacka Resources Somaliland Limited ('Jacka') in two transactions during 2014.
In April 2017, the Company agreed to revised farm-out terms to reduce the staged contingent consideration payments due to Petrosoma and reduce SE(EA)L's interest in the Odewayne asset by 6%. The farm-out agreement was amended such that the parties cancelled the $8.0 million contingent consideration in return for: (i) a payment by SE(EA)L to Petrosoma of $3.5 million; and (ii) a transfer from SE(EA)L to Petrosoma of a 6% interest in the PSA. Post Government of Somaliland approval, SE(EA)L holds a 34% interest in the Odewayne Block, fully carried by Genel Energy Somaliland Limited ('Genel Energy') for its share of the costs of all exploration activities during the Third and Fourth Periods of the PSA.
In early 2018, following encouraging results from an integrated geoscience review in late 2017 of the basic post-stack processed 2D dataset provided by the Operator Genel Energy, Sterling undertook a highly focused and rigorous processing effort, independent of the Operator. The first phase deliverables were a full PSTM dataset, consisting of 3 lines of ca. 235km and were received in May 2018. These reprocessed lines showed significant improvements in subsurface imaging and were shared with the JV partners in order to assist the decisions on forward work programs.
In parallel to Sterling's efforts, the Operator undertook a number of studies to support the interpretation of the 2D seismic dataset. This included the integration of the 2D seismic data with the potentials field data in the form of a 2D gravity modeling study, alongside an updated review of the regional geology of the Odewayne basin. These studies have led to the development of a number of geological models that have been used to interpret the seismic data and help support the likely presence of a sedimentary basin. Following this work, the JV partners have agreed that reprocessing of the seismic data is needed to further improve the understanding of the prospectivity of the Odewayne Basin.
Outlook
2019 will see the reprocessing of the entire 2D seismic dataset that was acquired in 2017. Processing will be to PSTM (with the contingent option to include Pre-Stack Depth Migration) and is expected to begin in Q2 2019. Following receipt of the reprocessed data, these will be interpreted with the objective of identifying a number of leads for further investigation. Alongside the seismic reprocessing, contingent activity includes a surface seep study focused on areas highlighted by the seismic interpretation as most likely to be situated above migration pathways from hydrocarbon kitchens.
It is anticipated that the above work carried out in 2019 will allow the JV to develop a lead portfolio for the licence that will form the basis for future work. This future work could include infill 2D seismic data acquisition over the most prospective areas with a view to maturing a number of prospects to drill-ready status. Such infill seismic would be acquired in 2020 or 2021 ahead of a decision to enter the next exploration period (Fourth Period), which includes the commitment to drill an exploration well.
FINANCIAL REVIEW
|
Selected financial data |
|
|
2018 |
2017 |
|
Revenue |
$million |
|
0.5 |
4.4 |
|
Adjusted EBITDAX |
$million |
|
(1.5) |
(5.9) |
|
Loss after tax |
$million |
|
(2.0) |
(9.0) |
|
Year end cash net to the Group |
$million |
|
46.3 |
81.4 |
|
Debt |
$million |
|
- |
- |
|
Year end share price |
Pence |
|
10.4 |
13.8 |
Income Statement
During 2018 there was one lift from the Chinguetti field of 9,222 bbls (net to the Company) (2017: 92,056 bbls, from three liftings) resulting in Group turnover of $534k (2017: $4.4 million).
Cost of sales totalled $515k (2017: $7.9 million).
Group cash G&A decreased by 25% during the year to $3.0 million (2017: $3.9 million). The continued reduction in the Group's administrative overhead is in keeping with the Board driven KPI for cash preservation.
|
|
2018 |
2017 |
|
|
$ million |
$ million |
|
|
|
|
|
Group administrative overhead |
(1.5) |
(2.4) |
|
|
|
|
|
Costs capitalised/recharged |
(0.0) |
(0.1) |
|
Pre-licence expenditure |
(1.4) |
(1.4) |
|
|
(1.4) |
(1.5) |
|
Share based payment expense |
- |
(0.1) |
|
Other non-cash expenditure |
0.0 |
0.1 |
|
Group cash G&A expense |
(3.0) |
(3.9) |
In 2018, a portion of the Group's staff costs and associated overheads have been expensed as pre-licence expenditure ($1.4 million), or capitalised/recharged ($39k) where they are directly assigned to capital projects or recharged. This totalled $1.4 million in the year (2017: $1.5 million).
Other non-cash expenditure ($10k) relates to office asset depreciation.
Interest received during the year was $1.0 million (2017: $1.1 million). Net finance income (finance income less finance expenses) totalled $1.0 million in the year (2017: $459k).
The loss for the year was $2.0 million (2017: loss $9.0 million):
|
|
|
$ million |
|
|
|
|
|
Loss for year 2017 |
|
(9.0) |
|
Decrease in revenue |
|
(3.9) |
|
Decrease in cost of sales |
|
7.4 |
|
Decrease in G&A and pre-licence |
|
1.0 |
|
Increase in net finance income |
|
0.6 |
|
Impairment of C-10 (2017) |
|
2.8 |
|
Chinguetti cessation credit (2017) |
|
(0.9) |
|
Loss for year 2018 |
|
(2.0) |
Group adjusted EBITDAX loss totalled $1.5 million (2017: $5.9 million loss):
|
|
2018 |
2017 |
|
|
$ million |
$ million |
|
|
|
|
|
Loss after tax |
(2.0) |
(9.0) |
|
|
|
|
|
Finance costs |
(1.0) |
(0.5) |
|
Pre-licence costs |
1.5 |
1.6 |
|
Impairment |
- |
2.8 |
|
Chinguetti cessation costs |
- |
(0.9) |
|
Share-based payments |
- |
(0.1) |
|
Total EBITDAX (Adjusted) |
(1.5) |
(5.9) |
The basic loss per share was $0.01 per share (2017: loss $0.04 per share). No dividend is proposed to be paid for the year ended 31 December 2018 (2017: $nil).
Statement of financial position
At the end of 2018, net assets/total equity stood at $67.3 million (2017: $69.3 million). Non-current assets relating to the Odewayne block totalled $21.1 million (2017: $21.0 million). Net current assets reduced to $46.2 million (2017: $48.2 million).
At the end of 2018, cash and cash equivalents totalled $46.3 million (2017: $81.4 million), this reduction primarily due to payments of; $32.5 million relating to the termination of the Chinguetti Funding Agreement and $1.3 million covering the minimum work obligation on the C-10 block (Mauritania).
IFRS 9 (Financial Instruments) was adopted on 1 January 2018 and required the consideration of the risk associated with the recoverability of intercompany loans between the Company and its subsidiary companies. This has resulted in an impairment allowance in the accounts of the company.
Cash flow
Net Group cash used in operating activities was $34.7 million (2017: $4.2 million outflow), primarily due to the termination of the Chinguetti Funding Agreement. A full reconciliation of which is provided in the Consolidated Statement of Cash Flows.
Cash investments in oil and gas assets are summarised below:
|
|
2018 |
2017 |
|
|
$ million |
$ million |
|
|
|
|
|
Mauritania |
1.3 |
0.2 |
|
Somaliland |
0.1 |
3.5 |
|
|
1.4 |
3.7 |
Minimal cash investments on the Odewayne Block in Somaliland during the year due to the Group's interest being fully carried by Genel Energy for its share of the costs during the Third and Fourth Periods of the PSA.
Total net decrease in cash and cash equivalents in the year was $35.0 million (2017: $6.8 million).
Accounting Standards
The Group has reported its 2018 and 2017 full year accounts under International Financial Reporting Standards ('IFRS'), as adopted by the European Union.
Cautionary statement
This financial report contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Directors believe the expectation reflected herein to be reasonable in light of the information available up to the time of their approval of this report, the actual outcome may be materially different owing to factors either beyond the Group's control or otherwise within the Group's control but, for example, owing to a change of plan or strategy. Accordingly, no reliance may be placed on the forward-looking statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
|
31st December 2018 |
|
31st December 2017 |
|
|
|
$000 |
|
$000 |
|
|
|
|
|
|
|
Revenue |
|
534 |
|
4,433 |
|
Cost of sales |
|
(515) |
|
(7,917) |
|
|
|
|
|
|
|
Gross profit/(loss) |
|
19 |
|
(3,484) |
|
|
|
|
|
|
|
Other administrative expenses |
|
(1,546) |
|
(2,379) |
|
Pre-licence costs |
|
(1,453) |
|
(1,628) |
|
Impairment of oil and gas exploration assets |
|
- |
|
(2,834) |
|
Chinguetti cessation credit |
|
- |
|
866 |
|
Total administrative expenses |
|
(2,999) |
|
(5,975) |
|
|
|
|
|
|
|
Loss from operations |
|
(2,980) |
|
(9,459) |
|
|
|
|
|
|
|
Finance income |
|
1,044 |
|
1,089 |
|
Finance expense |
|
(20) |
|
(630) |
|
|
|
|
|
|
|
Loss before tax |
|
(1,956) |
|
(9,000) |
|
|
|
|
|
|
|
Tax |
|
- |
|
- |
|
|
|
|
|
|
|
Loss for the year attributable to the owners of the parent |
|
(1,956) |
|
(9,000) |
|
|
|
|
|
|
|
Other comprehensive expense - items to be reclassified to the income statement in subsequent periods |
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
(12) |
|
(20) |
|
|
|
|
|
|
|
Total other comprehensive expense for the year |
|
(12) |
|
(20) |
|
|
|
|
|
|
|
Total comprehensive expense for the year attributable to the owners of the parent |
|
|
|
|
|
|
|
(1,968) |
|
(9,020) |
|
|
|
|
|
|
|
Basic and diluted loss per share (US cents) |
|
(0.9) |
|
(4.09) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|
|
Note |
31st December 2018 |
|
31st December 2017 |
|
|
|
$000 |
|
$000 |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Intangible exploration and evaluation assets |
4 |
21,093 |
|
21,041 |
|
Property, plant and equipment |
|
8 |
|
14 |
|
|
|
21,101 |
|
21,055 |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Inventories |
|
- |
|
363 |
|
Trade and other receivables |
|
390 |
|
868 |
|
Cash and cash equivalents |
|
46,312 |
|
81,365 |
|
|
|
46,702 |
|
82,596 |
|
|
|
|
|
|
|
Total assets |
|
67,803 |
|
103,651 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
28,143 |
|
28,143 |
|
Currency translation reserve |
|
(201) |
|
(189) |
|
Retained earnings |
|
39,387 |
|
41,343 |
|
Total equity |
|
67,329 |
|
69,297 |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Short-term provisions |
|
- |
|
28,659 |
|
Trade and other payables |
|
474 |
|
5,695 |
|
|
|
474 |
|
34,354 |
|
|
|
|
|
|
|
Total liabilities |
|
474 |
|
34,354 |
|
|
|
|
|
|
|
Total equity and liabilities |
|
67,803 |
|
103,651 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
Share |
Share |
translation |
Retained |
|
|
|
|
|
capital |
premium |
reserve |
earnings 1 |
Total |
|
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
At 1 January 2017 |
149,014 |
378,863 |
(169) |
(449,318) |
78,390 |
||
|
Loss for the year |
- |
- |
- |
(9,000) |
(9,000) |
||
|
Currency translation adjustments |
- |
- |
(20) |
- |
(20) |
||
|
Total comprehensive expense for the year attributable to the owners of the parent |
- |
- |
(20) |
(9,000) |
(9,020) |
||
|
Capital reduction |
(120,871) |
(378,863) |
- |
499,734 |
- |
||
|
Share option credit for the year |
- |
- |
- |
(73) |
(73) |
||
|
At 31 December 2017 |
28,143 |
- |
(189) |
41,343 |
69,297 |
||
|
Loss for the year |
- |
- |
- |
(1,956) |
(1,956) |
||
|
Currency translation adjustments |
- |
- |
(12) |
- |
(12) |
||
|
Total comprehensive expense for the year attributable to the owners of the parent |
- |
- |
(12) |
(1,956) |
(1,968) |
||
|
At 31 December 2018 |
28,143 |
- |
(201) |
39,387 |
67,329 |
||
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
2018 |
|
2017 |
|
|
|
$000 |
|
$000 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Loss before tax |
|
(1,956) |
|
(9,000) |
|
Depreciation, depletion & amortisation |
|
10 |
|
10 |
|
Impairment expense |
|
- |
|
2,834 |
|
Chinguetti cessation credit |
|
- |
|
(866) |
|
Finance income and gains |
|
(1,044) |
|
(1,089) |
|
Finance expense and losses |
|
12 |
|
609 |
|
Share-based payment charge |
|
- |
|
(73) |
|
Decommissioning costs paid |
|
(32,500) |
|
(125) |
|
Operating cash flow prior to working capital movements |
|
(35,478) |
|
(7,700) |
|
Decrease in inventories |
|
363 |
|
1,585 |
|
Decrease in trade and other receivables |
|
478 |
|
5,672 |
|
(Decrease)/increase in trade and other payables |
|
(41) |
|
4,332 |
|
Decrease in provisions |
|
- |
|
(8,041) |
|
|
|
|
|
|
|
Net cash flow used in operating activities |
|
(34,678) |
|
(4,152) |
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
Interest received |
|
1,044 |
|
1,089 |
|
Purchase of property, plant and equipment |
|
(4) |
|
(7) |
|
Exploration and evaluation costs |
|
(1,391) |
|
(3,690) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
(351) |
|
(2,608) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(35,029) |
|
(6,760) |
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
81,365 |
|
88,058 |
|
|
|
|
|
|
|
Effect of foreign exchange rate changes |
|
(24) |
|
67 |
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
46,312 |
|
81,365 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
The preliminary results announcement is for the year ended 31 December 2018.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.
The Annual Report and Accounts and the notice for the Company's Annual General meeting, which is to be held at 11.00 a.m. on 25 April 2019, will be posted to Shareholders on or about 29 March 2019.
2. Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operations Review. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review.
The Group has sufficient cash resources for its working capital needs and its committed capital expenditure programme at least for the next 12 months. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
3. Operating segments
Africa operations in 2018 focused on exploration and appraisal activities in Somaliland and production activities in Mauritania. The UK corporate office is a technical and administrative cost centre focused on new ventures. The operating results of each segment are regularly reviewed by the Board of Directors in order to make decisions about the allocation of resources and to assess their performance.
The following table's present revenue, profit and certain asset and liability information regarding the Group's operating segments for the year ended 31 December 2018 and for the year ended 31 December 2017.
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Corporate |
Africa |
Total |
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|
|
|
2018 |
2017 |
2018 |
2017 |
2018 |
2017 |
|
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
|
Statement of comprehensive income |
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|
|
|
|
|
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|
Revenue 1 |
- |
- |
534 |
4,433 |
534 |
4,433 |
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|
Cost of sales |
- |
- |
(515) |
(7,917) |
(515) |
(7,917) |
||
|
Gross profit/(loss) |
- |
- |
19 |
(3,484) |
19 |
(3,484) |
||
|
Other administrative expenses |
(1,546) |
(2,379) |
- |
- |
(1,546) |
(2,379) |
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|
Pre-licence costs |
|
|
(1,453) |
(1,628) |
- |
- |
(1,453) |
(1,628) |
|
Impairment of E&E assets |
|
|
- |
- |
- |
(2,834) |
- |
(2,834) |
|
Chinguetti cessation costs |
|
|
- |
- |
- |
866 |
- |
866 |
|
(Loss)/profit from operations |
(2,999) |
(4,007) |
19 |
(5,452) |
(2,980) |
(9,459) |
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|
Finance income |
|
|
1,044 |
1,089 |
- |
- |
1,044 |
1,089 |
|
Finance expense |
|
|
(20) |
(630) |
- |
- |
(20) |
(630) |
|
Segment (loss)/profit before tax |
(1,975) |
(3,548) |
19 |
(5,452) |
(1,956) |
(9,000) |
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Segment assets and liabilities |
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|
|
|
|
|
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|
Non-current assets 2 |
|
|
8 |
14 |
21,093 |
21,041 |
21,101 |
21,055 |
|
Segment assets 3 |
|
|
46,702 |
81,772 |
- |
824 |
46,702 |
82,596 |
|
Segment liabilities 4 |
|
|
(460) |
(484) |
(14) |
(33,870) |
(474) |
(34,354) |
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|
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|
|
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1 Revenue from continuing operations (Mauritania, Africa) includes amounts of $537k (100% external) from one single customer (2017: $4.1 million). |
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2 Segment non-current assets of $21.1 million in Somaliland (2017: $21.0 million). |
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3 Corporate segment assets include $46.3 million cash and cash equivalents (2017: $81.4 million). Carrying amounts of segment assets exclude investments in subsidiaries. |
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4 Carrying amounts of segment liabilities exclude intra-group financing. |
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4. Intangible Exploration and Evaluation assets
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|
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|
|
Group |
|
|
|
|
|
$000 |
|
|
|
|
|
|
|
Net book value at 1 January 2017 |
|
|
|
18,846 |
|
Additions during the year |
|
|
|
5,029 |
|
Impairment for the year |
|
|
|
(2,834) |
|
Net book value at 31 December 2017 |
|
|
|
21,041 |
|
Additions during the year |
|
|
|
52 |
|
Net book value at 31 December 2018 |
|
|
|
21,093 |
Included within 2017 additions were accruals of $1.3 million relating to C-10. This amount was settled in 2018.
Group intangible assets at the year end 2018:
Odewayne PSA, Somaliland: SE(EA)L 34%, Genel Energy 50%, Petrosoma 16%
Classified as a joint arrangement in accordance with IFRS 11.
5.Subsequent event
No significant subsequent events requiring disclosure or adjustment have occurred.
DEFINITIONS AND GLOSSARY OF TERMS
$ US dollars
Companies Act or Companies Act the Companies Act 2006, as amended
2006
1P proven reserves (both proved developed reserves + proved undeveloped reserves).
2D two dimensional
2P 1P (proven reserves) + probable reserves, hence "proved AND probable."
3D three dimensional
3P the sum of 2P (proven reserves + probable reserves) + possible reserves, all 3Ps "proven AND probable AND possible."
A&D abandonment and decommissioning
AIM AIM, a SME Growth market of the London Stock Exchange
AGM Annual General Meeting
Articles the Articles of Association of the Company
bbl barrel, equivalent to 42 US gallons of fluid
bopd barrel of oil per day
boe barrel of oil equivalent, a measure of the gas component converted into its equivalence in barrels of oil
Board the Board of Directors of the Company
City Code The City Code on Takeovers and Mergers
Company Sterling Energy plc
CoP cessation of production
CSOP Company Share Option Plan (HMRC approved share option scheme)
Directors the Directors of the Company
D&P development and production assets
E&E exploration and evaluation assets
E&P exploration and production
EBITDAX (Adjusted) earnings before interest, taxation, depreciation, depletion and amortisation, impairment, share-based payments, provisions, and pre-licence expenditure
EITI Extractive Industries Transparency Initiative
EUR the total amount of hydrocarbons expected to be produced from the hydrocarbon accumulation over the life of the project. Estimated ultimate recovery is synonymous with recoverable resource and the terms are used interchangeably.
Farm-in & farm-out a transaction under which one party (farm-out party) transfers part of its interest to a contract to another party (farm-in party) in exchange for a consideration which may comprise the obligation to pay for some of the farm-out party costs relating to the contract and a cash sum for past costs incurred by the farm-out party
FA Funding Agreement
FCA Financial Conduct Authority of the United Kingdom
FPSO Floating, Production, Storage and Offloading vessel
G&A general and administrative
G&G geological and geophysical
GBP pounds sterling
Genel Energy Genel Energy Somaliland Limited
Group the Company and its subsidiary undertakings
HMRC Her Majesty's Revenue and Customs
HSSE Health, Safety, Security and Environment
hydrocarbons organic compounds of carbon and hydrogen
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Index FTSE 350 Index
Jacka Jacka Resources Somaliland Limited
JV joint venture
k thousands
km kilometre(s)
km2 square kilometre(s)
KPIs key performance indicators
lead indication of a potential exploration prospect
London Stock Exchange or LSE London Stock Exchange Plc
M&A merger and acquisition
m metre(s)
mcf thousand cubic feet
OECD Organisation for Economic Cooperation and Development
OPEC Organisation of the Petroleum Exporting Countries
Ordinary Shares ordinary shares of 10 pence each
P90 the value on a probabilistic distribution which is exceeded by 90% of the outcomes.
P50 the value on a probabilistic distribution which is exceeded by 50% of the outcomes. The P50 is also the median value of the distribution.
P10 the value on a probabilistic distribution which is exceeded by 10% of the outcomes.
Pmean the average of the values in the probabilistic distribution between defined 'boundary conditions'. Universally regarded as the best single value to quote or communicate for any uncertain distribution of outcomes involved in repeated trial investigations.
Panel or Takeover Panel the Panel on Takeovers and Mergers
Petroleum oil, gas, condensate and natural gas liquids
Petroleum system geologic components and processes necessary to generate and store hydrocarbons, including a mature source rock, migration pathway, reservoir rock, trap and seal.
Petrosoma Petrosoma Limited (JV partner in Somaliland)
Pre-Stack Depth Migration process by which seismic events are geometrically re-located in space and depth to the location the event occurred in the subsurface
Pre-Stack Time Migration process by which seismic events are geometrically re-located in seismic travel time to the location the event occurred in the subsurface
Prospect an area of exploration in which hydrocarbons have been predicted to exist in economic quantity. A group of prospects of a similar nature constitutes a play.
PSA production sharing agreement
PSC production sharing contract
QCA Code Corporate Governance Code for Small and Mid-Size Quoted Companies 2012
RA Royalty Agreement
Reserves reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must satisfy four criteria; they must be discovered, recoverable, commercial and remaining based on the development projects applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by development and production status
Reservoir a porous and permeable rock capable of containing fluids
Seismic data, obtained using a sound source and receiver, that is processed to provide a representation of a vertical cross-section through the subsurface layers
SESP Sterling Energy plc share price
Shares 10p ordinary shares
Shareholders ordinary shareholders of 10p each in the Company
SMHPM Société Mauritanienne Des Hydrocarbures et de Patrimoine Minier (Mauritania's national oil company)
Subsidiary a subsidiary undertaking as defined in the 2006 Act
Tcf Trillion cubic feet
United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland
Waterford Finance and Investment Waterford Limited
Working Interest or WI a Company's equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms
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