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.
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Company Reserves Summary (Based on Forecast Prices
and Costs)(1)
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Net
Interest
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Company Share Gross(1a) and Net Oil
and Gas Reserves
as at December 31, 2016
(MMboe)(3)
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Summary of Net Present Value
of Future Net Revenue
Before Income Tax(6)
as at December 31,
2016
($million)
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Proved +
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Proved +
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Proved +
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Probable +
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Proved +
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Probable +
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Proved
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Probable
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Possible(2)
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Proved
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Probable
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Possible(2)
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Breagh (4)
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30.00%
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15.35
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21.68
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24.31
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190
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265
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295
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Cladhan (5)(9)
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2.0%
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0.03
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0.06
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0.09
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0
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1
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2
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Company
Total (7,8)
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15.38
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21.74
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24.40
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190
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266
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297
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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
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1
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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.
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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.
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1a
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Gross before royalties.
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2
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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.
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3
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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.
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4
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Breagh Reserves are predominantly gas. The Company's
current equity interest is 30.0%.
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5
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Cladhan Reserves are predominantly
oil.
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6
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Discounted at 10 percent per annum.
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7
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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:
- At
least a 90 percent probability that the quantities actually
recovered will equal or exceed the estimated Proved reserves
(1P);
- At
least a 50 percent probability that the quantities actually
recovered will equal or exceed the sum of the estimated Proved plus
Probable reserves (2P); and
- At
least a 10 percent probability that the quantities actually
recovered will equal or exceed the sum of the estimated Proved plus
Probable plus Possible reserves (3P).
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8
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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.
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9
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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.
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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.
