Sterling Resources Ltd. Provides 2016 Financial and Operating Results and Reserves Disclosure
CALGARY, March 29, 2017 /CNW/ - Sterling Resources Ltd. (TSX-V:SLG) ("Sterling" or the "Company") is pleased to announce financial and operating results for the year ended December 31, 2016 and reserves as at December 31, 2016. Unless otherwise noted, all figures contained in this release are denominated in US dollars.
FINANCIAL SUMMARY
The net loss for the year ended December 31, 2016 was $9.6 million ($0.04 per common share) compared to a net loss of $206.9 million ($0.51 per common share) for the year ended December 31, 2015. In 2015, the main factor driving the loss was the downward re-measurement of the deferred tax asset on the ground of lack of recoverability in the then low commodity price environment, whereas the net loss in 2016 was reduced due to a credit arising from a revaluation of the deferred tax asset, due to a forecast increase in UK net taxable income. Financial highlights during the year include as follows:
- The Company's consolidated net working capital surplus as at December 31, 2016, was $14.2 million compared to a net working capital deficit of $179.6 million as at December 31, 2015. The Company's liquidity position has materially improved since December 31, 2015 by completion of the recapitalization completed on May 30, 2016 (the "Recapitalization").
- Cash and cash equivalents were $10.4 million at December 31, 2016 compared to $10.9 million at year-end 2015.
- Operating netback of $33.3 million came from $47.4 million of revenue less $2.1 million of third party entitlement and $12.0 million of operating expenses ($8.51 per barrel of oil equivalent ("boe")). Funds Flow from Operations was $12.1 million.
- Revenue from the Breagh gas field during 2016 totaled $37.0 million, on sales gas production of approximately 7.9 billion cubic feet ("Bcf") at an average realized price of 33.5 pence per therm ($4.58 per thousand cubic feet), and sales of 3,162 tonnes of condensate (23,251 barrels) at an average price of $331 per tonne. Comparatively, during the year ended December 31, 2015 the Company recorded gas sales of 11.4 Bcf at an average realized price of $6.53 per thousand cubic feet and 5,238 tonnes of condensate at an average price of $396 per tonne.
- Net employee expenses in 2016, after allocations and recoveries, were $2.7 million, down significantly from the $4.4 million incurred in 2015, largely due to reductions in the Company's workforce during 2015 and 2016. Net general and administrative expense totaled $2.3 million during 2015, compared to $2.8 million in 2015, as a result of cost saving initiatives which were partially offset by increased legal and professional fees and lower recoveries.
OPERATIONAL SUMMARY
Strong production performance continued from Breagh throughout 2016 with high facilities uptimes. Full year average gross sales gas production achieved forecast at 71.3 million standard cubic feet per day ("MMscf/d") net 21.4 MMscf/d to the Company. Gross condensate sales for 2016 averaged 212 barrels per day ("bbls/d"), net 63.5 bbls/d to Sterling. All outstanding works at the Teesside Gas Processing Plant have been completed and the Breagh partnership entered into an Amended and Restated Gas Processing and Operations Agreement. In addition, the Company successfully entered into a new Gas Sales Agreement with British Gas Trading Limited, a subsidiary of Centrica plc.
The anticipated infill drilling campaign of two new wells (A09 and A10) in the Breagh field and the re-entry and hydraulic stimulation of one existing well to improve performance is expected to commence in June 2017. Planning for onshore compression is in progress at the time of this press release with start-up planned for the end of the first quarter of 2019. Full year gross sales gas production for 2017, as per RPS Energy, the Company's reserves evaluator is expected to average 72.9 MMscf/d, 21.9 MMscf/d net to the Company due to the natural decline in production from the existing wells plus the benefits from the production from the new drilling in the fourth quarter of 2017.
In the Netherlands, the Company is currently evaluating development options which include a subsea tieback to a potential Wintershall oil hub in the area, following the completion of seismic procession and interpretation work at the end of 2016 and during the first quarter of 2017. A licence extension has been granted to January 2021.
The Company has continued efforts to reduce non-essential costs with further partial relinquishments of exploration licences within the Ossian/Darrach and Niadar areas.
RESERVES SUMMARY
Sterling announces the filing of its annual Reserves disclosure pursuant to National Instrument 51-101 ("NI 51-101") dated March 29, 2017.
| Company Reserves Summary (Based on Forecast Prices and Costs)(1) |
||||||||
| Net Interest |
Company Share Gross(1a) and Net Oil and Gas Reserves as at December 31, 2016 (MMboe)(3) |
Summary of Net Present Value of Future Net Revenue Before Income Tax(6) as at December 31, 2016 ($million) |
||||||
| Proved + |
Proved + |
|||||||
| Proved + |
Probable + |
Proved + |
Probable + |
|||||
| Proved |
Probable |
Possible(2) |
Proved |
Probable |
Possible(2) |
|||
| Breagh (4) |
30.00% |
15.35 |
21.68 |
24.31 |
190 |
265 |
295 |
|
| Cladhan (5)(9) |
2.0% |
0.03 |
0.06 |
0.09 |
0 |
1 |
2 |
|
| Company Total (7,8) |
15.38 |
21.74 |
24.40 |
190 |
266 |
297 |
||
See "Notes to Reserves Summary".
FINANCIAL UPDATE
The completion of the Recapitalization of the Company has reduced the debt to a more appropriate level. In addition, the Company has access to a super senior revolving credit facility, though the Company currently forecasts that this will not be utilized. Following on from the Recapitalization, a 100:1 consolidation of the Company's common shares was completed, and further cost-reduction initiatives have been completed. The overall effect of these changes has been to put Sterling in much better shape to cope with a low commodity price environment and to progress the development activities on Breagh.
Following these financial and organisational changes, the Company received several approaches by parties interested to explore possible transactions in relation to the Company including potential mergers and an outright sale. These approaches and discussions culminated in the Company entering into an agreement for the sale of its UK subsidiary, Sterling Resources (UK) Ltd. ("SRUK") to Oranje-Nassau Energie B.V. ("ONE").
On March 3, 2017, the Company, together with its wholly-owned subsidiary SRUK Holdings Ltd. ("SHL") entered a definitive agreement (the "Share Purchase Agreement") with ONE, pursuant to which ONE has agreed to acquire (the "Transaction") from SHL the entire issued share capital of SRUK for an amount equal to US$163 million, less:
a) amounts necessary to redeem the outstanding US$40 million principal amount of bonds issued by SRUK;
b) amounts necessary to cancel the super senior revolving credit facility entered by SRUK, SHL and the Company with a syndicate of lenders; and
c) certain completion adjustments based on actual change of control and interim period costs relative to targeted amounts.
Following all such adjustments, and other associated expenses, the Company anticipates net proceeds from the sale of SRUK of approximately US$113 million, assuming a completion date of the Transaction of May 15, 2017.
In the event that the Transaction is approved by the shareholders of Sterling, all other conditions to closing are satisfied or waived and the Transaction is completed in accordance with the terms of the Share Purchase Agreement, Sterling will not have any active business operations or assets other than cash including, indirectly, the cash consideration received by SHL from ONE as consideration for the shares of SRUK. As a result, it is the current intention of Sterling, if approved by shareholders of Sterling, to undertake a voluntary winding-up and dissolution following completion of the Transaction (the "Winding-up").
Pursuant to the Winding-up, Sterling intends to distribute all net proceeds of the Transaction (after the payment or discharge of all obligations, including those associated with each of the Transaction and Winding-up itself (collectively, the "Obligations")) to the shareholders of Sterling in the form of return of capital in one or more installments. There are a number of variables, known and unknown, that may impact the ultimate amount of the distributions payable to Sterling's shareholders in connection with the Winding-up, including the quantum of the Obligations. While the distributions made to Sterling's shareholders may therefore be materially lower than the amount anticipated as of the March 3, announcement (the Transaction announcement date), based on the information available to Sterling as of the March 3, announcement, it is anticipated that the cumulative distributions to be paid to Sterling shareholders subsequent to the completion of the Transaction, are likely, based on the exchange rate at the time of the March 3, announcement, to be in the range of between Canadian $0.97 and $1.02 per Common Share as a return of capital on Common Shares.
The Common Shares of Sterling are expected to cease trading and be delisted from the TSX Venture Exchange on or about the time of the final distribution to Sterling shareholders.
Details of the Transaction and the Winding-up and the risks, processes and procedures associated therewith and subsequent to the completion thereof, will be disclosed in greater detail in the information circular regarding the Transaction, which will be mailed to shareholders in advance of the shareholders meeting that is expected to take place on or about May 8, 2017, to amongst other things, consider the Transaction and the Winding-Up.
CEO'S COMMENTARY
"Breagh has once again had strong production performance in 2016 and remains a valuable low operating cost UK North Sea asset, which with the anticipated infill drilling campaign beginning in 2017 and onshore compression will add further value. Having completed the Recapitalization, the Company now has a debt base more appropriate to its size and a clearer path forward. However, given the inherent risks involved in oil and gas operations including the fluctuations in commodity prices, and given a careful review of the Transaction by the board of directors, in consultation with our financial and legal advisors, we believe that the Transaction represents excellent value and is in the best interests of the Sterling shareholders," said John Rapach, the CEO of Sterling.
NOTES TO THE RESERVES SUMMARY
| 1 |
Estimates of Reserves and Future Net Revenue have been made assuming the development of each property in respect of which the estimate is made will occur, without regard to the likely availability to the Company of funding required for that development. |
| Numbers may not correspond precisely with those set forth in the Company's annual disclosure in Form 51-101F1 due to the effects of rounding. |
|
| 1a |
Gross before royalties. |
| 2 |
Possible Reserves are those additional reserves that are less certain to be recovered than Probable Reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of Proved plus Probable plus Possible Reserves. In this instance the gross values are the same as the net values because the royalty is zero. |
| 3 |
Boe figures may be misleading, particularly if used in isolation. A boe conversion ratio of six (6) Mcf to one (1) bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the volume ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value. |
| 4 |
Breagh Reserves are predominantly gas. The Company's current equity interest is 30.0%. |
| 5 |
Cladhan Reserves are predominantly oil. |
| 6 |
Discounted at 10 percent per annum. |
| 7 |
Company Reserves totals are arithmetic aggregations of multiple estimates, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give particular attention to the estimates of individual classes of Reserves and appreciate the differing probabilities of recovery associated with each class under a specific set of economic conditions:
|
| 8 |
The estimates of Reserves and Future Net Revenue for individual properties may not reflect the same confidence level as estimates of Reserves and Future Net Revenue for all properties, due to the effects of aggregation. |
| 9 |
The Company's current equity interest is 2.0 percent, but may revert to 13.8 percent upon repayment of a carry arrangement with TAQA. The RPS forecast of currently expected market conditions indicates that the repayment of the carry is never expected to occur. |
The Company's hydrocarbon reserves were independently evaluated by RPS Energy Canada Ltd. ("RPS") effective December 31, 2016 in accordance with the Canadian Oil and Gas Evaluation Handbook ("COGEH") reserves definitions and evaluation practices and procedures, as specified by NI 51-101. There is no certainty that it will be commercially viable to produce any portion of the Reserves. The evaluation uses the RPS forecast prices and costs as at December 31, 2016.
Complete details regarding Sterling's reserves for the year ended December 31, 2016 and in a format specified by NI 51-101 can be found on SEDAR at www.sedar.com or on the Company's website www.sterling-resources.com.
Executive summaries of the reserves and resources reports for the Breagh and Cladhan fields in the UK North Sea as at December 31, 2016 prepared by RPS are planned to be filed on SEDAR and made available on the Company's website www.sterling-resources.com within the next days.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Filer Profile No. 00002072
NON-GAAP FINANCIAL MEASURES
This news release contains references to certain financial measures used by the Company that do not have a standardized meaning prescribed by Generally Accepted Accounting Principles ("GAAP") and may not be comparable to similar measures presented by other entities. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to other measures of financial performance calculated in accordance with GAAP. The non-GAAP measures and their manner of reconciliation to GAAP financial measures are discussed below. These non-GAAP measures provide additional information that management believes is meaningful in describing the Company's operational performance, liquidity and capacity to fund capital expenditures and other activities. The specific rationale for, and incremental information associated with, each non-GAAP measure is discussed below.
References to operating netback, funds flow from operations ("FFFO"), and net working capital surplus (deficit) throughout this press release have the meanings as set out in this section.
Operating netback is defined as revenue less third party entitlement and operating expenses (each being a GAAP financial measure), and is used to analyze operating performance.
FFFO is defined as net income (loss) (a GAAP financial measure) less adjustments for non-cash items and is used to analyze operating performance (see "Consolidated Statement of Cash Flows" in the Company's financial statements for the years ended December 31, 2016 and 2015).
Net working capital surplus (deficit) is defined as current assets less current liabilities excluding the Cladhan funding arrangements and is used to monitor the short term financial health of the Company.
FORWARD-LOOKING STATEMENTS
All statements included in this news release that address activities, events or developments that Sterling expects, believes or anticipates will, should or may occur in the future are forward-looking statements. In particular, this news release contains forward-looking statements with respect to the anticipated completion of the Transaction and Winding-up, the approval of Sterling's common shareholders regarding the Transaction and Winding-up, expectations with respect to the range of cumulative distributions to shareholders in connection with the Winding-up and expectations for delisting the common shares from the TSX Venture Exchange. In addition, statements relating to expected production, reserves, costs and valuation are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future.
These forward-looking statements involve numerous assumptions made by Sterling based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. In addition, these statements involve substantial known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other-forward looking statements will prove inaccurate, certain of which are beyond Sterling's control, including: the impact of general economic conditions in the areas in which Sterling operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition, there are risks and uncertainties associated with oil and gas operations. Readers should also carefully consider the matters listed under the heading "Risk Factors" in the Company's MD&A.
Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Sterling's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. These statements speak only as of the date of the news release. Sterling does not intend and does not assume any obligation to update these forward-looking statements except as required by law.
Financial outlook information contained in this news release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.
FILINGS
Sterling has filed with Canadian securities regulatory authorities its financial statements for the year ended December 31, 2016 and the accompanying MD&A. These filings are available on www.sterling-resources.com and under Sterling's SEDAR profile on www.sedar.com.
ABOUT STERLING
Sterling Resources Ltd. is a Canadian-listed international oil and gas company whose registered office is in Calgary, Alberta with assets in the United Kingdom and the Netherlands. The shares are listed and posted for trading on the TSX Venture Exchange under the symbol "SLG".
SOURCE Sterling Resources Ltd.
John Rapach, Chief Executive Officer, Phone: +44 1224 806617, [email protected]; Christine Shinnie, Chief Financial Officer, Phone: +44 1224 [email protected]; Tracy Lessard, Corporate Secretary, Phone: (403) 813-4237, [email protected]; www.sterling-resources.com
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